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

The Economic Times - - Companies: Pursuit Of Profit - Play­ing its Cards

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.

28,700 438 4

cr/year mil­lion+

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.