SBI Looks to Hike Stake in Credit Card JVs with GE Bank’s move to up holding fits well with US conglomerate’s strategy to exit fin services
Sneha Shah & Baiju Kalesh
Mumbai: The State Bank of India, the country’s biggest lender, is seeking to increase its stake in its two credit-card joint ventures with diversified American conglomerate General Electric, as demonetisation increasingly drives consumers to spend online or through cards, three people with direct knowledge of the plan told ET. The Mumbai-based lender, which is also India’s biggest government-owned bank by market capitalisation, wants to increase its stake to at least 51% from 40% in the back office and technology arm GE Capital Business Process Management Services, and to 74% from 60% in SBI Cards and Payments, which markets and distribute credit cards.
“The institutional and strategic bidders will now get a minority stake in the company as SBI wants to gain significant control of the business,” said one of three persons mentioned above.
SBI’s move to enhance its stake in the credit-card ventures dovetails into US industrial major General Electric’s global strategy to exit financial services, a line of business the Boston-based maker of ultra- Started in 1998
Spent by customers through SBI card
PAT: for year ending March 31, 2016
sound equipment and artificial-lift machinery considers non-core. The company’s financial business in India, too, is a candidate for divestment, and the process has been on for the past six months. Barclays is advising SBI on the proposed transaction, while Morgan Stanley is helping GE.
In December 2016, global buyout funds Warburg Pincus, and Carlyle and Japan’s financial services group Credit Saison had bid for GE’s stakes in SBI Cards, valuing it at around $800 million.
Spokespersons at Carlyle, Warburg Pincus, and Credit Saison did not reply to mailed questionnaires. SBI and GE spokespersons, too, did not respond to e-mailed queries.
“SBI has expressed its interest to raise stake in both the joint ventures…this option is now looked at,’’ another person apart from the source quoted above told ET. “In the back Customer base end, it would definitely be 51%, or even more.’’
A third person close to the state-increase plan attributed SBI’s interest in securing significant majority control to the pronounced shift in consumer-spending modes after the November 8 currency-exchange initiative accelerated the acceptance of digital modes of transaction. As a stated objective of the Union government, digital and plastic-currency would likely become the transaction mainstay in the country where 98% of consumer payments were cash-based before November 8.
“Post-demonetisation, the online and card spends have gone up and with the government’s Digital India push, the SBI is now bullish on the business going forward,” said another person, who is involved with the deal.
According to a study by glo- bal consulting firm BCG, digital payments in India is expected to multiply 10 times as Internet banking and cards replace cash in transactions. “The situation has changed after demonetisation and the strong push by the government has seen traction in the digital payment sector in India,’’ Harish HV, head —private equity advisory services at Grant Thornton India, said in a recent teleconference.
“Broadly, PEs are keen on the Financial Services space, especially in payments and Fintech companies. Within the broader universe, players who can take care of customer acquisition and manage their risk mitigation skills will see heightened interest from PE players, he said.”
SBI Card, started in 1998, has more than four million users and is expected to add another million by next year. With an annual growth of 30%, SBI Card now commands anywhere between 15% and 18% market share in India. There are around 24 million credit card users in India until March 31, 2016. In the financial year ended March 31, 2016, SBI Cards recorded a net profit of ₹ 271 crore, and profit before tax of about ₹ 438 crore.
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