Banking licence aspirants: How the big names stack up The Reserve Bank of India today received 26 applications for new banking licences. The list includes most of the large corporate houses as well as those already in the financial services business. It includes some lesser known names too. While many of them have strong balance sheet to fund their foray into the banking space, here's a take on how they are placed in their businesses and their strengths as well as areas where they might need to pull up their socks.
ADITYA BIRLA NUVO Figures in ~crore BAJAJ FINSERV Figures in ~crore EDELWEISS FINANCIAL SERVICES Figures in ~crore Total Income (FY13) 24,981 Total Income (FY13) 5,075 Total Income (FY13) 2,175 Net profit (FY13) 1,093 Net profit (FY13) 1,574 Net profit (FY13) 178 ditya Birla Nuvo (ABNL), part of the Aditya Birla ajaj Finserv is the holding company for the rom being primarily a broking house, it has AGroup, is a ~ 25,490 crore conglomerate. ABNL is Total Income (FY12) 22,150 Bfinancial services businesses of the Rahul Total Income (FY12) 3,905 Fevolved into an integrated financial services firm. Total Income (FY12) 1,661 present across financial services, telecom, fashion & Net profit (FY12) 890 Bajaj Group. It has insurance joint ventures with Net profit (FY12) 1,338 It currently offers services including lending, Net profit (FY12) 128 lifestyle, IT-ITES and manufacturing and it com- RoNW (%) 12.7 Germany's Allianz SE and companies in con- RoNW (%) 24.9 broking, asset management and insurance. RoNW (%) 4.8 mands leadership position in most of its businesses. Networth 7,517 sumer finance, SME finance, commercial lending Networth 7,801 Edelweiss' bulk of revenues come from lending. Networth 2,636 Aditya Birla Financial Services ranks among the Price (Rs) 1,063 and wealth advisory businesses. Price (Rs) 643 Edelweiss is also one of India's leading institu- Price (Rs) 30.4 top five fund managers in India (excl. banks and LIC), PE (x) 30.2 The promoters plan to convert its subsidiary PE (x) 150 tional broking houses with more than 300 foreign PE (x) 49.8 managing AUM of about ~ 1,07,560 crore as on March Price/Book value (x) 1.9 Bajaj Finance into a bank. Bajaj Finance is in the Price/Book value (x) 4.3 and domestic clients and has also expanded in the Price/Book value (x) 1.7 2013 with annual revenue of over Rs 6,390 crore. It has Market Cap 12,782 business of consumer finance, SME finance and Market Cap 10,228 retail segment by acquiring retail-focused broking Market Cap 2,331 about 5.5 million customers, about 17,000 employees Promoter's holding (%) 53.8 commercial lending. Promoter's holding (%) 58.9 house Anagram Capital. Edelweiss is also growing its Promoter's holding (%) 37.4 and a nationwide presence through more than 1,775 ith assets under management (AUM) of over foot-print in the equity space. It has an AMC and an points of presence, and is the largest contributor to ABNL’s consolidated earnings before ~ 17,500 crore at the end of March, 2013 and expe- insurance arm. The company has decided to trans- tax. Birla Sun Life AMC improved its all India ranking to 4th and market share to 9.8 per rience in lending businesses Bajaj Finserv appears to be prepared to set up a bank. fer its existing merchant banking business to subsidiary as a step to comply with cent with an AUM of about ~ 83,451 crore. ABNL’s NBFC arm, Aditya Birla Finance dou- However, promoters currently own 58.9 per cent in the company and will have norms prescribed by RBI. Edelweiss has a network of over 200 offices across more than bled its book size in a year to Rs 8,000 crore as on March 2013. The company is also a to reduce their stake to meet the Reserve Bank of India's guidelines. 100 Indian cities. The company had a networth of around Rs 3,000 crore at end prominent player in PE, wealth management, broking & general insurance advisory space. March, 2013. Spreading its presence in rural segment though would need attention.
IDFC Figures in ~crore LIC HOUSING FINANCE Figures in ~crore L&T FINANCE Figures in ~crore Total Income (FY13) 8,148 Total Income (FY13) 7,659 Total Income (FY13) 4,226 Net profit (FY13) 1,836 Net profit (FY13) 1,023 Net profit (FY13) 730 DFC’s aspiration to become a bank has raised some Total Income (FY12) 6,435 romoted by LIC, the company is the second- Total Income (FY12) 6,215 &T Finance is a part of L&T, the $12.8 billion con- Total Income (FY12) 3,007 Iinterest among the market players. About half a Net profit (FY12) 1,554 Plargest housing financier in India and has a track Net profit (FY12) 914 Lglomerate. L&T has forayed into financial serv- Net profit (FY12) 455 decade ago, some key officials of IDFC mooted the record of over 22 years. A strong LIC (40.3 per cent ices through L&T Finance, which has been looking RoNW (%) 13 RoNW (%) 19 RoNW (%) 11.9 idea of converting the infrastructure financier to a stake in LIC HF) brand enables LIC HF to drive to grow both organically and inorganically. L&T Networth 12,286 Networth 5,710 Networth 4,753 full-fledged bank but the idea was not approved by healthy loan growth in addition to providing funding Finance has a presence in AMC, insurance and the Price (Rs) 128 Price (Rs) 255 Price (Rs) 78.5 the board. Now, under the new leadership of Vikram support. Its balance sheet stood at ~80,000 crore on lending businesses. It has identified the need for a Limaye –the idea was revived and also got approval. PE (x) 11 March 31, 2013. About 96 per cent of its borrowers PE (x) 13 good branch network and the development of a tal- PE (x) 120.8 One of the key drivers for IDFC to diversify into Price/Book value (x) 1 belong to the retail sector. Price/Book value (x) 2 ent pool suited to a banking entity as two stepping Price/Book value (x) 3.8 banking is that infrastructure growth has not been in Market Cap 19,445 The company's asset quality has remained strong Market Cap 12,856 stones to a successful banking venture. It has built Market Cap 13,477 line with expectations. In order to sustain profitable Promoter's holding (%) 0.0 (net NPA at 0.36 per cent) and the lender is likely to Promoter's holding (%) 40.3 its presence in financial services through acquisi- Promoter's holding (%) 82.5 growth, it is important to operate in sectors which witness margin expansion as teaser rate loans (loans tions--DBS Cholamandalam and Fidelity Mutual provides stability. One of the key challenges of a at lower rates for the first year) get re-priced this fiscal. The company is also looking to Fund in the AMC space and Indo Pacific Housing large NBFC like IDFC to convert into a bank, is to meet the CRR and SLR norms from expand its developer loan book, which could further aid margin expansion. Analysts Finance and Family Credit in lending businesses. The company has a diversified share- inception. Also, RBI has mandated 25 per cent of the branches to be opened in unbanked expect its loan book to grow at a healthy pace of 20 per cent and earnings to expand by holding with a professional management running the show. It will, however, have to areas. But IDFC is confident and does not see these as a problem. The well diversified 20 per cent plus over FY13-15. Lower than expected rate cuts, prolonged economic slow- comply with public shareholding norms as well as compete with existing, estab- ownership, high level of corporate governance and a professionally-run n institution may down are key macro concerns for the company. Any unprecedented fall in asset qual- lished players, even the newest of whom have at least a decade of a head-start in the give IDFC the edge. ity is also a key downside risk. business.
RELIANCE CAPITAL Figures in ~crore RELIGARE ENTERPRISES Figures in ~crore SHRIRAM CAPITAL Total Income (FY13) 7,520 Total Income (FY13) 3,840 Net profit (FY13) 812 Net profit (FY13) -554.07 n 2011, Anil Ambani revealed his interest to set up Total Income (FY12) 6,627 he promoters of Religare Enterprises – bil- Total Income (FY12) 3,923 hriram Capital was founded by R Finance under it which has AUM of Ia “world class bank”. Two years later, Ambani's Net profit (FY12) 457 Tlionaire brothers Malvinder Singh and Net profit (FY12) -212.77 SThyagarajan in 1974. The man is also about ~16,000 crore. Having two NBFCs Reliance Capital appplied for a new banking Shivinder Singh – were among the earliest to let famous for not owning a mobile phone in the same group might also prove to be RoNW (%) 3.3 RoNW (%) 0 licence. The company is in the business of financial the world know about their love for banking. even as his group has grown leaps and an issue. Networth 11,768 Networth 3,638 services with interests in asset management (AMC), Religare is one of the diversified financial services bounds. The group currently has assets Thyagarajan himself wasn’t keen on Price (Rs) 317 life and general insurance, commercial finance, Price (Rs) 336.4 group in India and offers services like asset man- under management of about ~74,000 letting go its NBFC business (to club with PE (x) 108.6 securities broking, investment banking and wealth PE (x) 12.5 agement, life and health insurance, lending, crore ($12.35 billion) with its flagship the bank) as required by RBI, but the oth- management. The only missing piece is probably Price/Book value (x) 0.7 broking, investment banking and wealth man- Price/Book value (x) 2.2 non-banking financial company (NBFC) er members of governing council of the banking. Market Cap 8,263 agement. Market Cap 4,736 Shriram Transport Finance alone hav- group convinced him and the group has Reliance Capital is roping in Japanese investors Promoter's holding (%) 54.1 The promoters have announced that they will Promoter's holding (%) 71.8 ing AUM of about ~52,000 crore. finally decided to apply for the license. and will sell 4-5 per cent stake each to Sumitomo sell 22.75 per cent stake in the company to meet Though Shriram group has said it will The group’s over 2,500 branches – Mitsui Trust Bank (a large bank in Japan) and the RBI's eligibility criteria. It has also partnered US-based Customers Bank, apply through Shriram Capital, which most of them in rural and semi urban Nippon Life Insurance (which has 26 per cent stake in the company's life insurance, which has acquired a minority stake in the company. Religare's strong financials holds its financial services business areas, however, will go in its favour in mutual funds and AMC businesses). The move will also allow promoters of Reliance (consolidated net worth of Rs 3,180 crore at the end of March, 2013) and large pres- except for the Chit Fund Company, the terms of getting a licence as RBI’s Capital to pare their stake to levels mandated by RBI. With total assets of ~ 40,588 crore ence (across 1,750 locations in India and abroad) will add to its strength. However, tough task for the group is to convert its objective of giving new bank licence is at end-March, 2013. it certainly has the financial strength and experience in lending. it is perceived that the company's primary business is broking, which is consid- NBFC businesses into a bank. It has that banks should foray into the But, its presence is restricted mostly in urban centres. ered as one of the high-risk businesses. another NBFC, Shriram City Union unbanked areas.
SREI INFRASTRUCTURE FINANCE Figures in ~crore TATA SONS VIDEOCON INDS. Figures in ~crore Total Income (FY13) 3,214 Total Income (FY13) 12,257 Net profit (FY13) 263 Net profit (FY13) -133 rei Infrastructure Finance offers services like proj- ata Sons, the holding company of the $100 billion Tata group, has applied for ideocon was the first to announce its desire to set up Sect finance, advisory and development, equip- Total Income (FY12) 2,446 Ta banking licence. Tata Sons holds 100 per cent stake in Tata Capital, which Va bank. The company, which has applied for a bank- Total Income (FY12) 12,667 ment finance and venture capital in the infrastruc- Net profit (FY12) 112 has a significant presence in the financial sector. The Tata's application through ing licence through Aurangabad-based Value Net profit (FY12) 429 ture space. It believes that its experience in the RoNW (%) 3.8 Tata Sons has taken many by surprise as it was widely expected that Tata Capital Industries, hired an international consultant to help it RoNW (%) -16.3 “business of managing money” (through lending Networth 3,179 would make the application. A strong balance sheet of Tata Sons is cited by the with the application procedure. Chairman Venugopal Networth 7,793 and borrowing) gives them an advantage over others Price (Rs) 22.1 insiders for the application. For 2011-12, Tata Sons reported a standalone profit Dhoot says he will use the parent branding which is a Price (Rs) 199 in getting a banking licence. PE (x) 11.7 after tax of ~ 3,150 crore on revenues of ~ 3,800 crore, as against a profit of ~ 3,250 household name in India due to its consumer goods PE (x) - Srei has been preparing itself to promote a bank Price/Book value (x) 0.4 crore on revenues of ~ 4,000 crore for 2010-11. business. “We have already set up a general insurance Price/Book value (x) 0.6 for over a year now, according to people familiar Market Cap 1,112 Tata Sons’ financial flexibility arises from its ability to raise additional funds. business. We have a very good track record and hope to Market Cap 6,340 with the developments. The company has hired Promoter's holding (%) 48.8 Tata Sons also enjoys strong liquidity, as reflected in its cash and bank balance get a licence,” says he. Promoter's holding (%) 69.4 experienced bankers and advisors for its proposed of about ~ 7,440 crore as on March 31, 2013. Its gearing has also remained stable Videocon’s general insurance foray is through a foray in the banking sector. over the past three years, at about 0.5 times, through March 31, 2012. During 2012- joint venture with Liberty Insurance of the US. The positives for the group include a no- The promoters of Srei held 48.8 per cent stake and hence they will not have to sell 13, though, the company initiated borrowings for refinancing the debt repayment loan default track record. But the group has to get experienced hands to run the bank if it shares to meet the regulatory norms. Also, Srei has significant presence in the rural vil- obligations of 2013-14, resulting in higher debt levels. Tata Sons presence across gets the licence. Also, while the group’s networth of about ~ 10,000 crore is sufficiently large, lages of Assam, Bihar, Orissa and West Bengal, where banking penetration is fairly low. a range of industries and geographies, and a strong employee and customer it has huge debt of over ~ 16,000 crore as on June 30, 2012. But, once the group sells its stake The company, however, does not have prior experience in retail lending. base would give it an advantage over peers. in the Mozambique hydrocarbon block, liquidity will improve substantially.
SREI INFRASTRUCTURE FINANCE decided to set up an asset have the option to raise investment in the bank, tive for the company. Figures in ~crore reconstruction firm with stake in the bank up to Pandit will also pick up JM’s size is also relatively Total Income (FY13) 1,042 Price (Rs) 27.4 $100 million of initial the limit to be allowed by stake in parent JM small given its networth Net profit (FY13) 183 PE (x) 46.4 ith former Citibank it will be able to pass the ing that Pandit’s name capital. JM has also the RBI. Financial and in a NBFC. of about ~ 1,700 crore. WCEO Vikram Pandit RBI’s rigorous test. JM’s will be a pull factor for it decided to nominate Pandit’s close associ- A very average track Thus, the question is Total Income (FY12) 874 Price/Book value (x) 1.3 as the face of the pro- track record till date in to get it the licence. JM Pandit as the non-execu- ate Hari Aiyar will also record of JM Financial in whether Pandit’s associa- Net profit (FY12) 121 Market Cap 2,063 posed bank, JM other businesses has has offered Pandit a stake tive chairman of the pick up a stake in the the financial services tion will be enough to get RoNW (%) 5.9 Promoter's holding (%) 69.1 Financial, is hoping that been average and its hop- in the bank and has also bank. Pandit will also bank. Besides making business may be a nega- JM the banking license. Networth 1,954
The others in the fray are Bandhan Financial Services, Department of Posts, IFCI, Indiabulls Housing, India Infoline, INMACS Management, Janalakshmi Financial Services, Magma Fincorp, Muthoot Finance, Smart Global Ventures, Suryamani Financing Company, TFCI, and UAE Exchange & Financial Services; RONW (%) and Networth are for FY12, except for Videocon (Dec' 2011) and Bajaj Finserv (March 2013) RONW is return on networth; Price, PE, P/BV and Market Cap are as on June 28th; Data for FY13 & FY12 are trailing 12 months ended March for respective years Source: Capitaline, Compiled by BS Research Bureau