The Reserve Bank’s new norms may allow Italian CRIF credit bureau to enter Indian market and also let it take over the cash-strapped and troubled High Mark
The Reserve Bank of India (RBI) has increased the foreign direct investment (FDI) limit to 74% in credit information bureaus in the country. According to our sources, this move may prove to be beneficial to Italian CRIF SpA to enter Indian market and also take over cash-strapped High Mark Credit Information Services Pvt Ltd (High Mark). The RBI move would also help other credit bureaus in India to procure funding from their promoters from abroad.
At present, investments, directly or indirectly by any person, whether resident or otherwise are limited to 10% of the equity capital of a CIC. However, an investment under the FDI route was permitted up to 49% and any transfer of more than 5% of shares requires approval from the RBI. Similarly, institutional investment in a credit bureau is capped at 10%.
The first exception to this was done to allow UK-based Experian and Equifax Credit Information Services Pvt Ltd (ECIS) enter the Indian market. This new norm from RBI would allow CRIF to enter India and subsequently takeover cash strapped and troubled High Mark. Credit bureaus like Credit Information Bureau (India) Ltd (CIBIL), Experian and Equifax have received funding of around Rs50 crore to Rs75 crore and have access to additional funds through promoter or parent company which are large organisations specialising in credit information business mainly in the US and UK.
Earlier, while admitting that High Mark was looking to raise funds from domestic and foreign investors, its promoter Prof Dr Anil Pandya said, “Only CIBIL has funds. The other two (Experian India and ECIS) are also in the market raising funds. Deep pockets and ample sources of funding do not help because of the regulatory constraints on capital structure of CICs.” ( )
Prof Dr Pandya, who lives in the US, had tried to rope in a foreign rating agency to put in additional capital.
As reported by Moneylife earlier, High Mark was negotiating with CRIF credit bureau for a bailout. High Mark was offered Rs30 per share by CRIF, which is also an existing shareholder in the credit bureau. CRIF SpA owns 9.09% stake in High Mark. We learned that CRIF executives had already met senior executives of RBI to assure them of support and continuity after takeover. However, the banking regulator, because of its reservations about CRIF’s ownership pattern, rejected the proposal.
Experian India, one of the four credit information companies (CICs) in India, was in talks with High Mark and reportedly had also completed the due diligence process. According to the sources, Experian had increased its bid to Rs27 from Rs25 to buy minimum 26% stake in troubled and cash-strapped High Mark. Reportedly, there is not much progress on this front as well.
High Mark was negotiating with other credit bureaus to do an asset sale, including 250 million records collected from member institutions, says a complaint filed by a former employee of the credit bureau to the finance minister, RBI governor D Subbarao, secretaries from the finance ministry and financial services.
High Mark, the only bureau started by individuals, has been under severe financial stress following the exit of several of its top managers and the failure of its rights issue.
In October 2013, High Mark appointed Steven Pinto as its new non-executive chairman.
High Mark also promoted Kalpana Pandey, its chief technology officer as whole-time director on its board and chief executive of the credit bureau. This was done following several complaints and reports by Moneylife, the RBI was understood to have directed Prof Dr Anil Pandya to step down as executive chairman of High Mark. ( )
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