Various foreign banks are exiting the wealth management business in India, citing unprofitability due to small market and stiff regulations.

The most recent departures from the Indian wealth market include Swiss banks like EFG Group, UBS, and Sarasin; and US-based Morgan Stanley.

The country’s premier bank Reserve Bank of India (RBI), in June last year, mandated that wealth banks can offer their services only by setting up a separate subsidiary to avoid any conflict of interest. It also specified the banks to get a prior approval before the commencement of providing any wealth management services.

UBS spokesperson in an emailed statement said: “While India remains an attractive market, UBS has concluded that, in view of its recently announced strategy for investment banking, it will not be feasible to implement its business plan for the bank branch in Mumbai in the form originally planned.”

India is Asia’s third largest economy with a stable growth and high savings rate. But the wealth maangement business hasn’t really picked up in the country, despite it being home to some of the wealthiest.

According to Karvy Private Wealth, the wealth management industry in India is small with a total individual wealth of $3.29tn compared with a global total of $135.5tn in 2013.

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With the stiff regulations controlling the market, many foreign banks believe that the market cannot be a profitable place in the long run and is also too small.

Banking companies UBS, Morgan Stanley and EFG are the ones that have closed their operations in the emerging private banking industry recently.

“The single motivation for those names leaving India- and we think a couple more will follow – is because of the problems they have back home,” says Nikhil Kapadia, chief executive of Wealth Management at Avendus.

“I think the lack of capital; the need to reduce their balance sheet size and get back to the basics for banking is responsible.”

And some other private banks have shut down their operations in India, citing regulatory and cultural issues, making it an immature market.

RBS Private Banking India, Prateek Pant, executive director for product and services said: “The scale is one of the biggest challenges. If you can’t reach a certain scale in size that becomes one of the defining criteria for the large global wealth managers.”

Capgemini and RBC Wealth Management published Asia-Pacific wealth report for the year 2013 which revealed that 41.1% of HNIs in India want complex wealth management needs for their businesses and family compared to 21.2% in the rest of the world.