In a move that will help Morgan Stanley to scale up its operations in India, the US banking major has received an in-principle approval from the Reserve Bank of India for a banking licence. This is a major development, which will enable the top tier global i-bank to set up full-fledged banking services, five years after it broke up with its one-time partner JM Financial to start on its own in India.
The bank has been advising clients on mergers & acquisitions and capital market transactions, and also servicing its institutional clients in India. The licence will now help it offer other products like wealth management, corporate banking and foreign exchange to its customers.
The bank which used its overseas balance sheet to fund Indian clients in transactions so far, can now build its India balance sheet and leverage it to cater to its clients.
A banking licence will also be critical in diversifying its Indian business with the shift in focus in investment banking in India – from a pure advisory model to a combination of advisory services and funding. In 2011, the firm topped the league tables for advising clients on the most number of deals in terms of volumes.
The exact nature of the banking licence and whether Morgan Stanley will start retail and corporate banking activities in India are not clear. A Morgan Stanley spokesperson also declined to comment on the developments. But the licence will clearly help it offer lending services to clients.
In the recent past, most of the bigger M&A transactions have been grabbed by i-banks with lending capabilities – precisely those who are able to write bigger cheques for the clients.
Till recently, the investment banking business was driven by innovative ideas and deal proposals, but underwriting capability is now emerging as critical for success. For equity transactions that demand banks to underwrite transactions, having a balance sheet is a must for i-banks in India.