The Foreign Investment Promotion Board had approved these proposals in its meeting on 14th June, when it deferred a decision on Jet Airways’ application to make a preferential allotment of 24% of equity shares to Etihad Airways
Eight FDI proposals worth Rs1,311.54 crore, including that of Norwegian telecom firm Telenor, have been cleared by the government on the basis of FIPB approvals.
The Foreign Investment Promotion Board (FIPB) had approved these proposals in its meeting on 14th June, when it deferred a decision on Jet Airways’ application to make a preferential allotment of 24% of equity shares to Etihad Airways.
Besides, the proposal of Multi Commodity Exchange (MCX) to bring in foreign investment was rejected by the board, an official release said.
Telenor Mobile Communication AS, has been given approval to invest Rs1,000 crore to set up a JV company in telecom sector. The Norwegian firm would be investing the money to raise its stake in Telewings to 74% from the current 49%.
The other proposals which have been cleared include that of Mahle Holding India (Rs280 crore), Kolkata-based Srei Infrastructure Finance to set up White label ATMs and UK-based Aveva Solutions for setting up an LLP for software development (Rs8.39 crore).
The statement said decisions on 10 applications were deferred, while six proposals were rejected.
On the equity stake sale matter in the controversial Rs2,058 crore deal between Jet Airways and Etihad, the PMO had yesterday said the matter was still under examination. It, however, said there were no differences between ministries over the air services agreement between India and Abu Dhabi.
The FIPB, headed by Economic Affairs Secretary Arvind Mayaram, is scheduled to meet again on 5th July. There are 30 items on the meeting agenda.
The UPA government wants to issue banking licences “at any cost” before the elections. However, the RBI is not in a mood to ‘rush’. Last time only 2% of the applicants managed to get banking licences from the regulator. So who would be the lucky ones this time? The list has many dubious entities
From little known microfinance institutions (MFIs) to conglomerates like the Tatas, Birlas, Ambanis, Bajaj and Larsen & Toubro (L&T), many have jumped into the bandwagon for the “once in a lifetime” lottery of a banking licence. Missing in the list is Mukesh Ambani, the richest man in India at present. Interestingly, when the banking licences were issued last time, only two out of 100 applicants were successful in 2003. Over the last two decades, the Reserve Bank of India (RBI) licensed only 12 banks in the private sector, in two phases.
This time also, while the United Progressive Alliance (UPA) government wants to establish new banks before the general elections, the banking regulator does not seem to be in a hurry. The Reserve Bank of India (RBI) has already made it clear that banking being a highly leveraged business, licences shall be issued on a very selective basis only to those who conform to the requirements, have an impeccable track record and are likely to conform to the best international and domestic standards of customer service and efficiency.
Here are the applicants… Aditya Birla Nuvo, Bajaj Finserv, Bandhan Financial Services Pvt Ltd (Kolkata), Department of Posts, Edelweiss Financial Services, IDFC, IFCI, Indiabulls Housing Finance, India Infoline, INMACS Management Services (Gurgaon), Janalakshmi Financial Services Pvt Ltd (Bangalore), JM Financial, LIC Housing Finance, L&T Finance Holdings, Magma Fincorp (Kolkata), Muthoot Finance, Reliance Capital, Religare Enterprises, Shriram Capital, Smart Global Ventures Pvt Ltd (Noida), SREI Infrastructure Finance (Kolkata), Suryamani Financing Company (Kolkata), Tata Sons, Tourism Finance Corporation of India, UAE Exchange & Financial Services (Kochi) and Value Industries (Videocon from Aurangabad).
However, many among the 26 applicants would fail in the ‘reliability’ test, especially if RBI decides to look at their history. Take for example, Aditya Birla Nuvo (ABN). According to a report in Forbes, ABN paid over Rs100 crore to investors for the loss they suffered in Aditya Birla Money’s risky options strategy called Options Maxima.
Then there are others like the Department of Post which neither is able to handle its core business of delivering letters nor can it manage postal savings accounts. On both counts, there are numerous complaints of harassment from end users. LIC Housing Finance is backed by the country's largest insurer, the Life Insurance Corp of India (LIC). However, it may need to change its business practice while becoming a bank. Similar is the case of Shriram Capital, the entity from vehicle finance provider Shriram group. To meet the requirements of a bank, both LIC HF and Shriram would have to make several changes in their business model besides maintaining a higher capital reserves.
The case of IFCI, another state-controlled entity is quite interesting. The entity set up in 1948 as Industrial Finance Corp of India to provide medium- and long-term credit to corporations, is more into news in the past few years for the “fighting amongst its top management”. This resulted in IFCI's managing director and chief executive Atul Rai, resigning on 30 May 2013.
After the resignation of Mr Rai, the finance ministry put on hold its plan to sell stake in IFCI, says a report from Economic Times. The government owns 55.57% stake in IFCI. The report also mentions about an argument between the chief credit officer and one of the vice-presidents of IFCI that turned into fistfights in the office.
Earlier, in February 2012, a single judge of the Delhi High Court had passed a judgment holding Rai guilty of contempt of court in a case related to Koshika Telecom and awarded him one month's imprisonment, in addition to a fine of Rs3.5 lakh to be deducted from his salary. However, in April, a division bench of the high court set aside the earlier order, reports Business Standard.
According to the guidelines issued by the RBI for banking licences, the entity or group should have a past record of sound credentials and integrity, be financially sound with a successful track record of 10 years. For this purpose, RBI had said it might seek feedback from other regulators and enforcement and investigative agencies.
Among the applicants is JM Financial. Its claim to fame is that most of its schemes are consistently underperforming. In an analysis done by Moneylife for consistent underperformers during April 2006 to March 2012, JM Financial Mutual Fund was the second topper on the list of underperformers. We even did an article labelling it as the worst fund house. Its portfolio management scheme (PMS) is also a big mess. However, consistent underperformance had not deterred the group from dreaming to become a bank.
Nimesh Kampani-led JM Financial joined hands with Citigroup's former chief Vikram Pandit to spearhead its banking venture. Pandit, his business partner Hari Aiyer and Aparna Murthy Aiyer together bought a stake worth Rs45 crore in JM Financial. Pandit, who had an unceremonious exit from Citigroup last year, also had plans to make investments in JM Financial’s non-banking financial companies (NBFCs).
If shareholder value creation is a criterion, many will be thrown off the list easily. Take for example, India Infoline. After hitting a 52-week high of Rs93.35 on 18 December 2012, India Infoline shares are continuously falling towards its 52-week low of Rs48.25 reached on 27 July 2012. From a high of Rs393 reached in December 2007, the stock is down by a breathtaking 85%.
Similar is the case of Edelweiss Financial Services. After hitting a 52-week high of Rs45.90 on 9 October 2012, the company’s shares are on a downfall. It reached its 52-week low of Rs27.60 on 6 May 2013. Edelweiss’s peak price was Rs180, hit in January 2008. It is down 87%.
Reliance Capital, the Anil Ambani group company is another aspirant. Its shares hit a 52-week high of Rs508 on 7 January 2013 and thereafter, it was on a free-fall till March. On 26 March 2013, Reliance Capital hit its 52-week low of Rs297.05. From Rs2,925, the stock is down 86%. Similar is the story of Religare and Srei Infra, the other two listed entities among finance companies wanting to set up a bank.
Among the other surprising entrants in the fray are gold loan company Muthoot Finance, real estate company Indiabulls and Bandhan Financial, a microfinance company. Muthoot is struggling to steady its business model, which has got a blow from falling gold prices. Earlier in January, the RBI Working Group headed by KUB Rao expressed concern on some gold loan NBFCs, which have been raising public deposits surreptitiously through unincorporated bodies.
Kolkata-based Suryamani Financing Company is a part of Pawan Kumar Ruia group that consists of Dunlop, Falcon and Monotona. Its record in its core business is so poor that we are struck by the audacity of this group in seeking a banking licence. Kochi-based UAE Exchange is an NBFC and claims to have a countrywide network of 328 branches and 44,000 agents across 20 states.
Both Bandhan Financial and Janaklashmi Financial Services are MFIs and would find it difficult to prove its credentials during the RBI scrutiny. Kolkata-based Bandhan Financial claims to be operative in 18 states through its 1,804 branches and have a loan outstanding of Rs4,400 crore as of May 2013. Bangalore-based Janalakshmi Financial Services is promoted by Ramesh Ramanathan and claims to have assets of over Rs500 crore.
Nothing much is known about Noida-based Smart Global Venture and Gurgaon-based INMACS Management Services, except it is headed by chartered account Vinod Jain.
Looking at the list of aspirants it appears, as though, everybody wants to try their luck in this once in 10-year jackpot. However, given the time constraints and the quality of applicants, it would be interesting to see if any new licence is given before the general election.