SBI will rope in a joint venture partner for its wholly-owned subsidiary, SBI Capital Markets, as part of a restructuring plan that aims to segregate project financing from investment banking. The plan is to get on board an investment bank having a global presence, bank’s chairman Rajnish Kumar told DNA Money. SBI will hold a majority stake in the JV. The project financing division, which contributes about 90% of the revenues of SBI Caps, will migrate to the parent entity.

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The project finance advisory that SBI Caps now does for clients will also come to an end, thus shrinking its revenues initially. But the other services like fund-raising, public issues, private placement of debt and equity, mergers & acquisitions and advisory and broking will be beefed up in the joint venture company. “We are planning to have a joint venture partner in SBI Caps. We will look at an investment bank which has a substantial presence overseas as this will complement the extensive domestic presence that we already have in the country,” Kumar said. He, however, declined to name the potential investors who could be roped in.

While the project financing business will migrate to the bank, the focus of SBI Caps will be on investment banking and loan syndication. “The plan is part of the overall restructuring of the bank to improve our credit quality and other performance parameters.”

The restructuring of SBI Caps is undertaken after the Reserve Bank of India (RBI) highlighted the duplication of functions at the bank and its investment banking subsidiary. In order to tackle bad loans, SBI had already initiated an overhaul of its operations a month back, which included a restructuring of SBI Caps. 

The other catalyst for slicing out the project finance function from SBI Caps was the rising number of complaints from other banks blaming the investment bank for the advisories on various credit sanctions that have now turned sour.

“The smaller banks have been complaining that they have lent money based on the advice given by SBI Caps. But even if advice is given by SBI Caps, the individual banks should have done their own credit appraisal systems as per RBI guidelines before taking a call on the credit decisions,” said Kumar. Last year, SBI Caps’s project finance division contributed Rs 383 crore, amounting to about 90% of its total revenues.

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In the league table data put out by Thomson Reuters, SBI Caps was ranked as the first in Asia Pacific and Japan for corporate loans. SBI Caps was the mandated lead arranger for project finance for the past five years with a global market share of 4%.

In 1997, Asian Development Bank (ADB) picked up a 13.84% stake in SBI Caps. But ADB’s stake was bought back by SBI in 2010.

Source: DNA Money