The Hong Kong and Shanghai Banking Corporation might look for more than one regional bank in India, if and when it decides to hit the acquisitions trail.

The decks for bank acquisitions were cleared after this year's Budget proposed raising the foreign direct investment  ceiling in private banks to 74 per cent and removing the cap on voting rights.

"This is a step in the right direction and has given us food for thought," HSBC's chief executive officer in India, Niall SK Booker, said.

"This does not mean that we are immediately taking over a bank. It is just an option for us," he added.

HSBC has four criteria for acquiring a bank.

"The acquisition has to make economic sense. The combined entity has to make enough profit to justify the capital employed. The customer base has to fit into the HSBC strategy. We will also look at the cultural fit and the quality of the staff. Finally, there should be no system impediments, regulatory or infrastructural," Booker said.

Booker ruled out the possibility of taking the subsidiary route to grow.

"We have not found much benefit in the subsidiary route. India is moving fast to full capital-account convertibility. The Reserve Bank of India has been liberal as far as the licensing of branches is concerned, and it does not make sense to set up subsidiaries," he said.

Booker said HSBC could take over one bank in the north and one in the south. "If you are an acquirer, there are some advantages in taking over a small bank," he added.

Booker refused to say whether HSBC would focus on new or old private banks, but said that HSBC might look at banks in those areas of the country that are growing faster.

Earlier, one of the major hurdles for foreign banks contemplating taking over private banks was the 10 per cent cap on voting rights.

This meant that even for an entity holding a higher stake in a bank, the voting rights were capped at 10 per cent. This clause was removed in the Budget for 2003-04.

"The removal of the 10 per cent cap on voting rights is a significant change. It was a necessary step to open up the market," Booker said.

On building a branch network, Booker said: "We do not need 1,500 branches to be a significant player in the country. What is needed is correct customer segmentation. Setting up branches in rural areas or buying a bank that is in the low socio-economic group is not attractive. The strategy is to grow organically or to find a bank with such a group."

According to Booker, there are only five or six realistic players in the market who may be interested in acquisitions. "There will not be any rush of foreign banks to acquire local banks. The fear or hope that foreign banks will come charging in is a fallacy," he said.

Takeover time

HSBC's CEO in India Niall Booker ruled out the subsidiary route for growth;