Bloodbath on the cards: RBI has hit cash logistics firms with capital norms

“If a Danny Ocean were to pull a stunt out here, we would be in big trouble,” says Suneel Aiyer, CEO of Writers Safeguard. He and his rivals at the other four big cash logistics companies (CLC) — CMS Systems, Securevalue, SIS-Prosegur and Brinks Arya — cart almost 70 per cent of the daily average of Rs 150 billion in cash movement. But the danger implicit in the business is not the reason why Aiyer draws in his stomach a bit more as he refers to the Hollywood blockbuster Ocean’s series on heists. 

The industry, hitherto unregulated, will now face more scrutiny by the Reserve Bank of India (RBI). By end-March 2019, each CLC is supposed to achieve a net worth of a billion rupees, failing which there will be a big shakeout in the industry. Cash-in-transit (CIT) firms, which provide the vans and security, must also adhere to the new capital norms. It is to align the capital threshold on a par with that of payment banks: Essentially, it is part of the payments universe, feels RBI.

It’s being said that some global cash logistics giants have contributed significantly in bringing this change, and that these players would then be able to pick up larger stakes in Indian entities. Firms such as Brinks, Prosegur, Loomis, G4S and Garda are the leading international players, some of which are soon set to foray into currency chest management — a proposal that is gaining traction on  Mint Road. 

The Central Association of Private Security Agencies (CAPSA) met Piyush Goyal, when he was finance minister earlier this year, to plead that the issue of new regulations came under the purview of the home ministry (and not the RBI) that notified the Model Rules 2018, under the Private Security Agencies Regulatory Act (2015). CAPSA has secured a stay from the Delhi high court till November 29. 

On the chessboard

Is the industry being “gamed” then? Ravi B Goyal, founder and Managing Director of AGS Transact Technologies’, whose subsidiary is Securevalue, dances around the issue: “In any case, a handful of players corners 80 per cent of the trade.” Anil Puri, Chairman and Managing Director of the APS Group, who sold cash logistics firm Securitrans to CMS Systems for Rs 2.5 billion in December 2011, is blunt: “A bloodbath is on the cards. The bigger boys want it, but don’t expect me to name them. At least I got to keep my guns (his security firm, A P Securitas), and a few roses were thrown my way when I sold out.”

Says Uma Shankar Paliwal, CEO of Cash Cyclers’ Association (CLA), and former Executive Director of RBI: “So far, there were no traffic rules. Expectedly, some will be aggrieved.” The Indian Banks’ Association (IBA) has shot off a letter to the RBI that a monopoly situation is set to be created in the cash logistics industry. “When did you last read of the IBA using the word monopoly in a communication,” asks Puri.

CLCs not only move cash, but also offer services like vaulting, bullion management and cash processing. Their share of the outsourcing of currency chests is set to go up significantly given banks are keen to save approximately 35-50 per cent of the expenses incurred on maintaining the same on their own. If the RBI were to throw it open, it would be a bonanza for the CLCs. In FY18, Rs 5.3 billion was generated through these diversified offerings, up from Rs 5 billion in FY17.

Meanwhile, furious jockeying for prime turf slots is underway. AGS Transact’s Goyal took a Rs 7-billion loan earlier this year from the Piramal Group to buy out private equity (PE) investors TPG and Actis, which held a 49 per cent share in Securevale. “I will repay (Piramal) once my public issue is through,” he says. 

Goyal doesn’t deny that he is in talks with Loomis, or that Writers had approached him with a merger proposal. “We are all friends and we talk. But there is nothing by way of a deal.” Writers and CMS, too, eyed each other. Many others are in talks with private equity firms to raise capital. 

Wake-up time

Aiyer says: “This is more like a commodity business. There is no IP (intellectual property). It’s about arms and legs on the field.” What he implies is that most of the nearly 100 companies will not survive, although he did not say if this is happening by design.

The cash logistics business is quite a bit in the shadows. It got a significant leg-up in the mid-nineties, when foreign banks set up ATMs and went about with door-step cash service — a smart tip-toe over Mint Road’s strict branch licensing norms. The CLA was set up only in 2013, and it was not until a month ago that the self-regulatory Currency Cycle Association came into being. The RBI, too, was blindsided for a long time. It issued guidelines for every other aspect of outsourcing such as managed services and direct sales agents, but cash logistics escaped its attention. 

Clearly, that has changed — the RBI seems to have woken up and wants to make up for lost time.