BackShriram splits holdings with eye on bank licence
Shriram Cap, through which the group holds its financial services arms, will be the NBFC seeking a banking licence
Premium(R. Chandru/Mint)
Chennai: The Shriram Group has moved its non-financial businesses worth 4,500 crore to a new holding firm, Shriram Venture, to meet Reserve Bank of India (RBI) norms and apply for a banking licence, a top official of the Chennai-based firm said.
Shriram Capital, through which the group holds its financial services entities, will become the non-banking financial company (NBFC) seeking a banking licence. By creating a separate holding firm for businesses across diverse sectors of real estate, infrastructure, engineering, business process outsourcing and information technology, the group is also hoping to attract better valuation. “Yes, we have set up a holding company for the non-financial businesses," R. Thyagarajan, the 75-year-old founder of the group, said in an interview. He didn’t say if he would be the chairman of this new entity. “The process to identify the person is on," he added.
The group’s flagship firm, Shriram Transport Finance Co. Ltd, runs a pre-owned truck financing business and manages ₹ 42,000 crore assets. The group also has a presence in retail finance, and life and non-life insurance. “There will be a Chinese wall between the financial services and non-financial services business," said S.Murali, executive director and company secretary of Shriram Capital.
In August 2011, RBI released the draft licensing norms for new private banks. In September this year, Tata Sons Ltd, the holding firm of the ₹ 4.5 trillion Tata group, restructured its non- banking financial firm Tata Capital Ltd, to be able to apply for a banking licence as and when RBI finalizes the entry norms.
On Tuesday, the Parliament passed the Banking Laws (Amendment) Bill 2011, empowering RBI to supersede bank boards at a time when many business houses are wanting to enter the banking business, a pre-condition of the central bank for issuing licences. The Shriram Group had evinced interest in applying for a banking licence in 2010. Since 22 November, when the winter session of Parliament started, shares of non-banking financial firms seeking to enter the banking business have risen. For instance, shares of Shriram Transport Finance have risen 22.1% in this period.
The August 2011 draft licensing norms suggest a minimum capital requirement of ₹ 500 crore, a 49% cap on foreign shareholding, and also that business groups that derive at least 10% of their revenue from broking and real estate be barred from entering the banking business. The new banks will be set up only through a wholly owned non-operative holding company to be registered with the Reserve Bank as an NBFC, which will hold the bank as well as all the other finance companies in the business group.
Experts said the creation of separate holding firms will benefit the group. “Financial services will be able to command a better valuation and better premium with this clear distinction of two separate holding companies," said Ajay Parmar, co-head of investment banking in Emkay Global Financial Services.
Shriram Ownership Trust holds the investment holding firm, Shriram Financial Ventures Pvt. Ltd which, in turn, owns 89% of Shriram Capital, the holding company for all financial services, with private equity investor TPG Newbridge holding the remaining 11%.
South African investor Sanlam owns 33% in Shriram Financial Ventures, which translates into a 26% stake in the life- and non-life insurance firms. The group’s non-financial businesses are being restructured similar to how Shriram Capital was formed a few years ago to put all the financial services entities together.
“Shriram Venture will do the same for non-financial business," Murali said. Currently, Shriram Enterprise Trust holds all non-financial services firms. Since 2004, the group has attracted 20 private equity (PE) investments, according to Venture Intelligence, which provides information on investments by PE and venture capital firms.
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