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Priya Nair

Mumbai, Aug. 24 An increasing number of banks are floating private equity (PE) funds in order to add to their non-interest income. This gives them the opportunity to exploit their expertise in risk management and advisory services.

Banks also have the advantage of large networks, which can help them tap more investors for their funds.

So far, Axis Bank has launched a private equity funds through its arm, Axis Private Equity. Other banks such as State Bank of India, ICICI Bank and Yes Bank also have plans to launch PE funds.

According to Mr Alok Gupta, Managing Director and CEO, Axis PE, given Axis Bank’s strong advisory services and robust lending book, a PE fund was one step forward in the bank’s growth curve. The bank’s large domestic presence and expertise in capital market services makes a lot of sense for it to get into the PE space.

“The PE segment gives opportunities that are not usually found in the equity space and, therefore, it fits into the bank’s growth strategy. It also helps to take advantage of the bank’s high capital base,” he said.

Axis PE has announced a $500-million infrastructure fund, for which it has already raised $150 million from domestic institutions and some international institutions. The fund is expected to tie up the entire amount by the end of this year.

“Compared to a third-party fund, we have a significant advantage for sourcing investment through our network. A lot of standalone PE funds have a presence only in some cities. But we can use our bank’s network,” he said.

State Bank of India and ICICI Bank are both planning PE funds to cater to the small and medium enterprises sector. SBI’s fund would be in the order of Rs 500 crore in size and would grow gradually. ICICI Bank’s fund is likely to have a corpus of $200 million. Yes Bank is also planning to launch two to three private equity funds in the next one year.

The whole concept of PE funds fits into the scheme of things for banks that are already into wealth management. As a lot of investors in PE funds are high net worth individuals (HNI), it makes more sense for banks to float and manage the funds themselves, than to merely market other funds, said Mr Rajesh Mokashi, Executive Director, Care Ratings.

“This is the arrival of the HNI fund management concept. Banks will want to do it themselves, as they have the ability to mobilise funds and they are in the business of risk management,” he said.

While several foreign banks are already offering PE funds, going ahead, more Indian banks could also enter this space, he added.

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