RBI eases lending norms for urban co-op banks

The Reserve Bank of India (RBI) has relaxed lending norms for tier-II urban co-operative banks (UCBs), making it easier for them to lend to commercial real estate and non-banking finance firms (NBFCs).The central bank has rationalised and reduced the standard asset provisioning requirements for tier-II UCBs from 1 to 2 per cent earlier to 0.40 per cent across sectors. It has also slashed risk weights on lending to various sectors.

The provisioning norm in case of direct advances to agriculture and SME sectors, however, is kept unchanged at 0.25 per cent.
According to a central bank circular today, loans and advances to commercial real estate will now attract a risk weight of 100 per cent as against the earlier 150 per cent.

The banking sector regulator has allowed UCBs to fund only asset-financing NBFCs and the risk weight on exposure to such companies remains unchanged at 100 per cent.For tier-I UCBs, the general provision norms on all their standard assets have been kept unchanged at 0.25 per cent.

On November 15, RBI had reduced the standard asset provisioning requirements of banks lending to NBFCs to 0.40 per cent from 2 per cent, except in the case of direct advances to agriculture and SME sectors, where the provisioning requirement remains at 0.25 per cent.Similarly, the central bank had also reduced banks’ risk provisioning for commercial real estate loans to 100 per cent from 150 per cent.

Goldman, Shriram Group call off deal

The investment arm of US investor and the Chennai-based Shriram Group have called off the much hyped stakesale in the latter believed to be due to valuation differences.Sources familiar with the development said that the deal ran into rough weather, after Goldman wanted to revisit the valuation of Shriram group company. With falling markets, it is but natural that deals get re-visited.

In March this year, Goldman Sachs, announced it was picking up a 20% stake in Chennai-based Shriram Credit for Rs 300 crore, thereby making an indirect entry into equity and commodity brokerage business in India. Shriram Credit is a non-banking finance company (NBFC) under Shriram Group, which is engaged in lending activities.

Read more in The Economic Times article.

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Goldman Sachs picks up 20% in Shriram Credit for Rs 300 cr

ICICI investment in VC arm under lens

Reserve Bank of India (RBI) has taken a hardline approach to the country’s largest private bank ICICI’s investments in ICICI Venture — the country’ biggest private equity fund. The regulator feels that ICICI may be using its venture capital arm to make investments which could have been difficult from the bank’s books.

ICICI Venture is a subsidiary of ICICI Bank. Besides owning I-Venture, the bank also invests in some of the funds managed by the VC. Just as in mutual funds, a string of financial investors subscribe to such funds where the bank also joins in.

RBI has told ICICI Bank to include its investments in the VC in fulfilling the exposure limits that the bank has to stick to. Under prudential norms, the maximum exposure a bank can take to a company or a business group is linked to its capital. Earlier, banks used to float non-banking finance companies (NBFCs) to sidestep this regulation and lend to corporates.

Read more in The Economic Times article.

ICICI seeks non-banking finance company licence, drops FoF plan

ICICI Bank has applied for a licence to set up a non-banking finance company (NBFC), even as it has decided to stick to its knitting in other areas. The country’s second-largest bank has shelved plans to get into the fund of funds (FoF) business. It has also dropped the idea of setting up an infrastructure fund by itself.

Last year, the bank had made plans to foray into the FoF business. It was looking to start with around $500-million fund and then expand it to around $2.5 billion with multiple closing. However, with international markets going into a tizzy on the back of the subprime crisis, the bank has decided to shelve its FoF business plans. The bank was also looking at setting up a $2-billion infrastructure fund.

On the investor appetite for funds, ICICI Bank joint MD Chanda Kochhar said, “The demand for such funds continues to be strong, because infrastructure in India is still attracting a lot of interest and investors are long-term players who are not affected by short-term movements in the market.”

Some other players like Citi, Blackstone, 3i and Axis Bank have set up infrastructure funds to invest in India. On the FoF, she pointed, “We haven’t really finalised all plans there. In the current market scenario, it doesn’t make sense.” The FoFs are essentially investor groups that invest in private equity funds in order to provide investors with a low-risk product through exposure to a large number of vehicles across sectors and even geographies.

The bank has applied for a NBFC licence to RBI. If RBI approval comes through, it will be the second private sector bank after HDFC Bank to set up a NBFC. However, the plans have not been finalised. The group is also looking at using its housing finance company to book more home loans from this year.

Goldman Sachs picks up 20% in Shriram Credit for Rs 300 cr

One of the world’s largest investment banking firms, Goldman Sachs, is picking up a 20% stake in Chennai-based Shriram Credit for Rs 300 crore, making an indirect entry into equity and commodity brokerage business in India. Shriram Credit is a non-banking finance company (NBFC) under the south India-based Shriram Group, which is engaged in lending activities.

The Indian group is transferring its brokerage and distribution services business to Shriram Credit and bringing in Goldman Sachs as a significant minority partner. The deal values the firm at Rs 1,500 crore ($375 million). Goldman Sachs is routing the deal through its 100% Mauritius-based subsidiary GS Strategic Investments.

According to company sources as per the initial agreement, the US-based I-banking firm also reserves the right to further expand its equity stake by 5% to take its stake in Shriram Credit to 25%. The transaction will be through a preferential allotment to Goldman Sachs.

Read more in


The Economic Times article.

Unitech owners plan an NBFC

The owners of India's second-largest listed real estate firm, Unitech Ltd , plan to set up a non-banking finance unit to sell home loans in the fast expanding market."We are looking at within a year to start the business," the paper quoted Unitech Managing Director Sanjay Chandra as saying.

The NBFC will provide services related to real estate finance, possibly mortgage finance.The financial services business would be managed by an unlisted group company and the funding would come from the Chandra family's personal wealth, the paper said.It also said Unitech was in talks with international insurance firms to offer general insurance in India.

Goldman, Macquarie set to buy 40% in PTC arm for Rs 120 crore

PTC is selling a 40% stake in PTC Financial Services (PFS), the investment arm of power trading and advisory services company.The deal is expected to be in the region of Rs 120 crore.Two private equity players, Goldman Sachs and Macquaire would subscribe equal number (20% each) of shares in the company. PTC, formerly known as Power Trading Corporation, is diversifying beyond its traditional power trading business.

PFS Registered as a non-banking finance company (NBFC), one of the main activities of which would be to pick up equity in power projects and facilitate financial closure.

PFS is expected to dilute its holding further by 26% when the capital of the NBFC is raised further, reducing the holdings of PTC to below 50%.The proposal received a huge response from investors forcing it to appoint a consultant to finalise the equity partners for PFS.PTC was also engaged in talks with Blackstone, Soloman Brothers and a few other private equity players for roping them as strategic partner in PFS.

Read more in The Economic Times article.

Lehman picks 26% in Edelweiss` NBFC

The New York-headquartered Lehman Brothers has picked up 26 per cent stake in ECL Finance, the non-banking finance company of Edelweiss Capital, for close to Rs 180 crore.The acquisition comes within days after Lehman Brothers bought the institutional broking business of Brics Securities, a Mumbai-based broking house.

In March, the Mumbai-based financial services company Edelweiss announced its foray into the non-banking financial space and asset management by investing a total of Rs 400 crore in the new ventures.The NBFC would be looking at mortgage business and other credit instruments.

Last week, Edelweiss filed a prospectus with the capital market regulator, the Securities and Exchange Board of India (Sebi), for its initial public offering. The company will be offering 8.3 million equity shares of Rs 5 each and the post issue dilution is 10.92 per cent.A portion of the proceeds of the issue will be used to buy office space of about 30,000 sq ft either for ECL Finance or for Edelweiss Securities.

Read more in The Business Standard article.

Lehman seen close to buying 51% in Brics Sec

Lehman Brothers, one of the biggest global financial services providers, is in advanced stages of picking up a 51% controlling stake in local securities firm Brics Securities.

The Wall Street major will scale up its stake in the Mumbai-based brokerage firm to 100% over the next three years, if the deal goes through, according to sources close to the development. They said Lehman is picking up a stake in Brics Securities which is the financial services arm of the JV Gokal Group. It was created in October 2003, following the acquisition and rechristening of Birla Sun Life Securities — joint venture between the Aditya Birla Group and Sunlife Group of Canada.

The Mumbai-based brokerage has a retail and private client business. It offers portfolio management services, besides distributing third-party products. It also has an NBFC licence, which currently does lending against shares, albeit in a small way and a commodities broking business.

SBI stake sale by Dec; to float NBFC

State Bank of India (SBI) is likely to go for a stake sale by December as part of its efforts to mobilise Rs 50,000 crore in the next three years.

"We are awaiting amendment to the SBI Act. We should be able to go for a stake sale by December," chairman O P Bhatt told reporters today.

The bank will also form a non-banking financial company (NBFC) to manage its insurance and asset management businesses for which details are being worked out, Bhatt said.

Bhatt also said that the issue of preferential shares was another option for raising capital, and it would be also considered once the amendment is through.

Bhatt said SBI would be forming joint venture for the NBFC, and is looking at both Indian and foreign partners. Regarding its listing, Bhatt said the bank would not sell more than 10% as the main purpose of the sale would be price discovery.

Read more in The Business Standard article.

FinMin clears FDI in BSE, UBS, others

The government today cleared UBS India's plans to acquire domestic NBFCs as part of approval granted to 23 Foreign Direct Investment (FDI) proposals involving investments of Rs 418.33 crore.

The proposals approved by Finance Minister P Chidambaram will allow UBS (India) to acquire shares of the existing non-banking finance companies (NBFCs) with an estimated investment of Rs 224 crore.

These proposals were recommended by FIPB for approval by the Finance Minister, an official statement said.

The minister also approved the proposal of four foreign investors to pick stake in the Bombay Stock Exchange at an investment of Rs 13 lakh. Consequent to this, FDI in BSE could go up to 16%.

Read more in The Business Standard article.

HDFC Bank gets nod for NBFC

The Reserve Bank of India has allowed HDFC Bank to start a non banking finance company.
The NBFC, to be set up by HDFC Bank, will be a wholly owned subsidiary and will undertake retail operations such as auto, personal loans etc. The bank does not rule out the option of roping in a partner with a minority stake.

HDFC Bank also plans to start overseas operations in Singapore, Bahrain and Hong kong soon.

Earlier, the RBI opposed setting up of NBFCs by banks because it felt that it was to take advantage of regulatory arbitrage. That time NBFCs, especially non deposit taking ones, were unregulated and did not attract prudential or capital adequacy norms.

Read more in The Business Standard article.

Sivasankaran, Future Capital lap up NBFCs

Call it the rush for retail financing. After AIG, Temasek, DB Zwirn and DBS of Singapore, it is the turn of Indian retail honcho Kishore Biyani and rookie businessman Sivasankaran to pocket small NBFC companies to move them as vehicles for consumer finance.

In a recent development, Future Capital (part of the Pantaloon Group) has acquired a small NBFC, Sivagami Finance, for an undisclosed sum, while Sivasankaran has bought the stakes in another NBFC — Abhi Ambi Finance — based in Chennai. The acquisition price of both transactions are not known. However, it is learnt that Ernst & Young was seen advising in both transactions.

RBI Sources confirmed that Future Capital has made an application to buy Sivagami Finance. The acquisition per se is no big deal in monetary terms, but it does indicate the growing appetite of companies to enter the retail financing section.

Global NBFCs want to play it big in India

Top global financial firms which have acquired a foothold in the Indian non-banking finance companies’ (NBFCs) segment are now pursuing an aggressive strategy to expand their reach within the country.

Fullerton India, a subsidiary of Temasek, the Singapore government’s investment arm, is emerging as one of the most aggressive players in the financial sector. The firm is now drawing up plans to open 400 branches over the next 12 months to scale up its operations from the current base of 100 branches.

Other recent entrants in the NBFC segment include biggies such as AIG Capital while other global players — BNP Paribas and Societe Generale have also entered the business by acquiring stakes in Indian firms.

The aggressive moves by these firms come at a time when entrenched firms such as Citi Financial and StanChart’s Prime Financial have been pursuing a scorching growth strategy. Besides, the new players have to contend with local firms — Future Group and Indiabulls which have also forayed into this business during the past few years.

Read more in The Economic Times article.