Mumbai: Orbis Capital Ltd, a non-banking custodial services provider, is seeking to raise around 500 crore from private equity (PE) investors to fund diversification and set up a custodian bank, said founder, chief executive officer and managing director Atul Gupta.

“We have initiated the process (of fund-raising) recently and we are having preliminary dialogues with investors," said Gupta in an interview.

The company has hired advisory firm BMR Associates to help it raise the money.

Orbis, which provides custodial services such as clearing and settlement of securities market transactions to foreign and institutional investors, plans to expand to derivatives clearing and loans against shares.

Gupta, a veteran of the financial services industry, previously founded Orbis Securities Pvt. Ltd, which later became Indiabulls Securities Ltd. He was also founder-CEO of brokerage firm Batlivala and Karani Financial Services Pvt. Ltd.

Orbis, which Gupta founded in 2009, is restructuring its business in anticipation of the introduction of custodian banking regulations by the Reserve Bank of India (RBI), he said.

“Having endorsed differentiated banking through payments banks and small (finance) banks, RBI vide their monetary policy statement of early April 2016 has set the ball rolling to bring in custodian banking regulations in India," said Gupta.

In the US, custodian banks such as State Street Corp. or BNY Mellon are overseen both by the central bank, the US Federal Reserve, and by market regulator Securities and Exchange Commission because every transaction they handle overlaps both banking and the securities market, he said.

“But in India, since we are not a bank, we have to keep depending on the banks to support us in the transactions, which increases paperwork, increases costs and also impacts revenues," added Gupta.

Other non-bank custodial service providers in the country include Edelweiss Financial Services Ltd, Stock Holding Corp. of India Ltd and IL&FS Securities Services Ltd.

In international markets, custodian banks are not allowed to provide services such as derivatives clearing or operate any lending business.

Orbis is restructuring its business to have a separate custodial services business which will house the custodian bank once regulations come into place, and a separate entity to house the derivatives business and the loans against shares business, also called prime brokerage, said Gupta.

The custodial services business is currently housed under Orbis Financial Corp. Ltd, while Orbis Capital is the non-operating holding company.

The money the company is looking to raise will primarily be used to fund the two new business lines of derivatives trading and prime brokerage.

“Currently the derivative business is a very small part; we are doing it only for some of our existing clients. Around 80-90% of the funds raised would be going towards the prime brokerage business, while the rest will go to the derivatives clearing business," said Gupta.

Orbis is targeting profit to the tune of 100-120 crore from the prime brokerage and derivatives clearing businesses two years down the road, he added. It is targeting profit of 50 crore from the custodial business in the same time period.

The company also plans to invest around 100 crore towards additional funding by its custodial services subsidiary.

Custodial services will continue to be a big driver for Orbis going ahead.

“Foreign portfolio investors (FPIs) are increasing; they are coming in a big way. Mutual funds are growing in a big way. Domestic pension funds are investing in stock markets, and the government securities and corporate debt market is also growing," said Gupta.

The company currently has around 300 customers across the spectrum, such as FPIs, domestic institutions, corporate entities, high net-worth individuals and mutual funds.

According to Kalpesh Mehta, partner at Deloitte Haskins and Sells, India, the creation of custodian banks is part of RBI’s efforts to put in place an ecosystem for specialized entities as it did with payments banks and small finance banks.

“Right now, our universal banks are doing everything and there are very few specialized custodial service providers. Also, the specialized ones are Sebi-regulated (Securities and Exchange Board of India-regulated). Once they become a bank, they will be RBI-regulated and can collect money for clearing and settlement, in addition to maintaining custody of assets. Additionally, they can also look at ancillary services such as wealth management," added Mehta.