Devonshire Capital
February 28th 2001

NBFC goliaths to make debut

Source: Business Standard - India

BS Banking Bureau

Stronger overseas players are likely to enter the non-banking finance sector as the Union Budget has proposed fresh measures regarding foreign direct investment (FDI) in the sector.

The obligation that 25 per cent of the fund is to be divested in the country to get permission for 100 per cent FDI through automatic route has been removed. However, the minimum amount of investment has been raised to $50 million from the present of $5 million.

Singapore-based Devonshire Capital's managing director Kush Verma said: "The move gives more flexibility to the foreign players to make foray into the sector."

Mahesh Thakkar, executive director, Association of Leasing and Financial Services (AL&FS), said: "Hiking the investment limit from $5 million to $50 million ensures that small and insignificant foreign players are barred from making entry. This is a welcome move."

He, however, said the abolition of the divestment obligation clause will bar small investors from getting the benefit of higher profit expected to be earned by the foreign players.

"Though it may not harm the sector, it will bar small investors from earning better return," said Thakkar.

S K Mitra, managing director, Birla Global Finance, said that the move is a part of the ongoing reform procedure. He, however, added that the acquisition of any of the existing weak non-banking finance companies (NBFCs) is ruled out because of the poor asset quality.

"There will be fresh entry of foreign players rather than buying out of any existing weak companies," Mitra said.

K V S Manian, chief operating officer, Kotak Mahindra Finance, said: "The move will definitely facilitate fresh FDI flow to the sector. But I do not expect the foreign players to buy any of the existing NBFCs as there are only very few good companies."

Thakkar of AL&FS, however, pointed out that the imposition of 5 per cent service tax on leasing and financial services as detrimental to the NBFC industry.

"We are already working on a thin margin. The tax will decrease the profit margin more and will bring more ailment to the dying NBFC sector," Thakkar said.

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