The Hindu Business Line : Global Trade Finance hopes to become a bank; IPO in the offing

EXIM Bank of India-promoted Global Trade Finance Pvt Ltd (GTF) hopes to convert into a bank, but not in the near future. "That is our ultimate objective," Mr Arvind Sonmale, Managing Director and Chief Executive Officer, told Business Line . But a near-term objective is to prepare for an initial public offering (IPO).

GTF, a non-deposit taking non-banking finance company (NBFC), is into factoring and forfaiting services (which are essentially bill discounting, but with some technical differences.)

Forty per cent of its Rs 81-crore equity capital is held by Exim Bank of India. FIM Bank of Malta (formerly, First International Merchant Bank) holds 38.5 per cent, IFC, Washington, and Bank of Maharashtra hold 12 per cent and 9 per cent respectively.

Because its booming business needs capital and because of its commitment to IFC, Washington, the company proposes to come out with a public issue. The IPO could hit the market in 2007, Mr Sonmale said.

Last year, GTF's disbursements (receivables discounted) amounted to Rs 2,000 crore, of which about Rs 700 crore were for overseas receivables. Also, last year's business was 136 per cent higher than the previous year's. In the current year, disbursements are expected to cross the Rs 3,000-crore mark.

Similarly, profit moved up from Rs 3.5 crore in 2003-04 to Rs 10 crore in the following year and is expected to be not less than Rs 15 crore this year.

Mr Sonmale expects a further pick-up in business, mainly because of new products being introduced. One is domestic factoring without recourse — GTF will assume the risk of defaults on the receivables. However, the company will insure the risk — now, there are credit insurance products available — and the premium would have to be borne by the client.

Another product is `import factoring', where GTF guarantees payment from the Indian client to the overseas exporter. Such an offering is possible because GTF is a part of Factor Chain International, which is a sort of an association of factoring companies around the world.

Today, GTF borrows from the market to fund its operations. It is allowed to borrow from abroad to the extent of its overseas exposures. However (like any other NBFC), it is not allowed to raise foreign currency resources abroad and convert them into Indian rupees for its domestic operations. Mr Sonmale said that it would greatly help GTF's business if the Reserve Bank of India allowed the company to borrow abroad for its Indian operations too.

In the long term, GTF intends to become a bank to access low-cost funds. Mr Sonmale does not believe that meeting priority sector targets will be an issue because already most of GTF's disbursements are to SMEs and agriculture-based companies.

What route would GTF take to become a bank? The options are: Convert into a bank, set up a banking subsidiary or take over another bank and reverse merge into it. Mr Sonmale would not comment on this. "It is up to the shareholders to take these decisions," he said.