SBI Caps entering into new business segments to boost growth, de-risk

SBI Capital Markets is targeting new activities as part of its move to broad-base the investment bank’s revenue stream and de-risk itself from excessive reliance on project advisory and structured finance services (PASF).

Currently, about 80 per cent of its income comes from the PASF segment. The move comes in the wake of a slowdown in new capital investments during the past two years as Indian industry has still not fully utilised capacities installed earlier.

As a part of this exercise, the investment bank has identified three new activities that are expected to contribute significantly in the next few years, Varsha Purandare, Managing Director and CEO, SBI Caps, said.

First, the investment bank is expanding its offering to the mid-corporate segment — companies with turnover of between ₹100 crore and ₹1,000 crore. Earlier, when the economy was in a growth path, the focus was only on large companies and projects.

With the new vertical, the investment bank will have a larger base of clients to tap into. Varsha said this vertical should see substantial growth in the next one year, particularly in areas and companies where private equity (PE) firms are looking to enter or have made investments and are eyeing exit routes.

The second activity that was started recently is scouting for a line of credit for commercial banks from sovereign funds, long-term pension funds, ADB/World Bank and other development banks. These funds will be used by commercial banks to on-lend to their clients — particularly for environment-friendly projects.

Varsha said that these institutions are showing a lot of interest in infrastructure funding and are willing to give credit on a long-term basis — something which has hitherto been a hurdle in the Indian market.

“For instance, we helped secure a $500-million credit line for SBI for solar projects. And that comes at a fine rate of interest for the long term,” she said.

The third activity that SBI Caps has identified for growth is the municipal bonds market. With the government encouraging municipalities to start financing their infrastructure needs through recourse to their own funds, the local bond market will have to pick up.

There is, however, a considerable gap in the preparedness of municipal bodies to raise funds from the market as many of them need to update their books of accounts, get them audited and have themselves rated.

Given that investors in such bonds are typically provident funds, pension funds and insurance companies, the minimum rating that these bodies require is a ‘AA’ (double A).

SBI Caps is hand-holding municipal bodies get ready to comply with investor requirements and enter the municipal bond market.

Varsha said that SBI Caps has been working with Ahmedabad and Pune municipalities for the past four months, and is in talks with a few others.

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