The Hindu Business Line : StanChart NBFC to focus on corporates

STANDARD Chartered Investments and Loans (India) Ltd, the newly set up non-banking finance subsidiary of Standard Chartered Bank, will focus on lending to corporates.

The bank believes that growing through a separate NBFC-subsidiary has advantages over converting the India operations into a bank incorporated in India, Standard Chartered's Regional Head - Global Markets - India & Nepal, Mr M.A. Ravi Kumar, said here on Thursday.

First of all, a locally set-up NBFC can raise money by issuing bonds; a foreign bank ( such as Standard Chartered) cannot do that.

Second, an NBFC that does not raise funds by accepting deposits from the public has no SLR norms to comply with.

In contrast, a bank or an NBFC which accepts public deposits should mandatorily invest 25 per cent of such deposits in safe, liquid Government bonds.

Since Standard Chartered Investments will raise funds only through corporate deposits, commercial paper and issue of bonds, it does not need to set apart any money to comply with liquidity norms; therefore, it would have more funds to lend.

There is of course the tax benefit in local incorporation — a bank set up in India needs to pay 35 per cent tax, whereas a foreign bank will pay 40 per cent.

(Last year, Standard Chartered Bank's India operations earned it a pre-tax profit of $186 million, or about Rs 840 crore.)

But while there is a tax advantage in local incorporation, a foreign bank is exempt from meeting the `priority sector lending' requirements — mandatory loans to specified sectors, which banks do not see as profitable.

An NBFC would have the lower tax advantage but there would be no priority sector lending requirements.

(Incidentally, a view that priority sector norms are a stumbling block in foreign banks converting themselves into subsidiaries incorporated in India was recently expressed by Mr Romesh Sobti, Executive Vice-President of ABN Amro Bank.)

In this connection, Mr Ravi Kumar suggested that it would be helpful if the Reserve Bank of India expanded the definition of `priority sector lending' to include home loans.

He said that the new NBFC would essentially focus on giving loans to large companies.

Replying to a question, he said that the NBFC lending to companies would not eat into the bank's corporate business.

The `corporate pie' is large, and growing, and the bank has limitations in lending. Therefore, the NBFC can complement the bank's business.

Mr Ravi Kumar also heads the bank's `corporate advisory services' division, which provides consultancy and fund-raising services for mergers and acquisitions.

This division was set up in September last year. In the coming 12 months, the bank expects to "do a dozen deals," Mr Ravi Kumar said. This could get the bank a fee income of around Rs 15 crore.