How Sidbi, PSU banks bought stakes in CapitaWorld3 min read . Updated: 02 Jan 2019, 01:30 AM IST
A group of PSU banks and their subsidiaries paid a premium of 119 per share in July to jointly buy a majority stake in CapitaWorld
Mumbai: The government’s “MSME loan in 59 minutes" scheme has been mired in controversy since launch. Now, a new allegation has surfaced that Small Industries Development Bank of India (Sidbi) favoured fintech company CapitaWorld for processing scheme’s loan applications. In November, Sidbi had said it owns a majority stake in CapitaWorld.
Mint accessed documents and spoke to a senior Sidbi official to track how public sector banks (s) and Sidbi bought 54% in Ahmedabad-based CapitaWorld Platform Pvt. Ltd.
The idea of automating some of the loan clearance processes for micro, small and medium enterprises (MSMEs) was discussed at the PSB Manthan, a meeting of senior PSU bank executives with the government held in Gurugram in November 2017. Following this, a group of nodal officers was formed, including members from PSU banks and Sidbi, to look at various options, one of which was to create an in-house platform through a special purpose vehicle (SPV) that would be 100% owned by Sidbi and banks.
On 22 January 2018, Sidbi issued a request for proposal (RFP) which said it was looking to move up the SME lending value chain by introducing contactless or less-contact loans to improve credit access, sometimes referred to as “straight through online sanction of loans".
The idea behind appointing a consultant, the RFP had said, was to validate this concept with various stakeholders and develop a detailed plan, followed by transformational changes in the way lending is done. “In this connection, to start with, four PSU banks have agreed to collaborate with Sidbi in this initiative," it had said.
According to responses received by Mint under the Right to Information Act, Sidbi received bids from The Boston Consulting Group India Pvt. Ltd (BCG), McKinsey & Co., and Ernst & Young (EY) but did not appoint any consultant. “No consultant was engaged under RFP in reference," the RTI response said.
While McKinsey and BCG declined to comment, an email sent to EY remained unanswered till publishing of this story.
Manoj Mittal, deputy managing director at Sidbi, said over the phone that the tender was scrapped as it was found that hiring a consultant and developing an in-house platform would exceed its budget and cross the six-month deadline.
“The nodal officers felt it will be worthwhile to have a look at existing fintech firms who have had a headstart in the business and have two to three years of experience, making it easier for banks to roll out the service," said Mittal.
An “institutional process" was started to find a suitable fintech firm and there were three to four stages in the process, Mittal said. The first one, he said, was to shortlist companies by trawling information available in public domain. “There was a team from Sidbi that scanned multiple sources and shortlisted a few of them. Bankers then decided to entrust the next stage to Sidbi Venture Capital Ltd , which zeroed in on the firm. The terms of reference and then the term sheet were given to the identified company," said Mittal.
Mint reported on 16 November that a group of PSU banks and their subsidiaries paid a premium of ₹ 119 per share in July to jointly buy a majority stake in CapitaWorld. It came into focus after Prime Minister Narendra Modi announced a series of measures to help MSMEs by giving them access to quick finance and sparing them the rigours of complying with some labour laws.
Sidbi, PSU banks and their associate or subsidiary firms own a combined 54% in CapitaWorld—SBI (9%), Sidbi (8.03%), Sidbi Trustee Co. Ltd A/c Samridhi Fund (11.97%), Bank of Baroda (9%), Vijaya Bank (2%), Indian Bank (2%), Punjab National Bank (5%), SBI Cards and Payment Services Pvt. Ltd (3.5%), and BoB Capital Markets Ltd (3.5%).
Some banks insisted on a second level of due diligence after the decision to invest in CapitaWorld was finalized, Mittal said. “There were valuations done by reputed firms, legal due diligence, process audit and legal audit. There was a sub-committee of bankers comprising information technology (IT) heads of different banks, which looked into the IT architecture of CapitaWorld and its safety features and only then was the investment made," he said.
CapitaWorld came into focus after Modi announced a series of measures designed to help small businesses by giving them access to quick finance and sparing them the rigours of complying with some labour laws. The ‘MSME support and outreach’ programme launched by Modi is meant to grant quick access to credit at attractive terms. Loan requests for up to ₹ 1 crore will be approved online in principle in less than an hour, 59 minutes to be precise.