Geojit likely to hive off business

Plans to separate commodities to let BNP Paribas buy stake in financial firm.

Hurdles in French financial services group BNP Paribas' acquisition of a 33.35 per cent stake in Kochi-based Geojit Financial Services are close to being cleared.

PAVING THE WAY

The central bank is not in favour of banks getting into commodities business

RBI had earlier rejected an application by IDBI Bank's subsidiary, IDBI Capital Markets, for launching commodities trading business

UTI Securities had to hive off its commodities broking business for RBI to clear StanChart's acquisition of a 49 per cent stake in it

Geojit's commodities trading business is likely to be separated in order to enable BNP Paribas get an approval from the Reserve Bank of India (RBI) for acquiring the stake.

RBI had earlier rejected an application by IDBI Bank's subsidiary, IDBI Capital Markets, for launching commodities trading business as it is not in favour of banks getting into commodities business.

UTI Securities also had to hive off its commodities broking business before the central bank could clear Standard Chartered Bank's acquisition of a 49 per cent stake in it from Securities Trading Corporation of India (STC) last year.

Banking sources said, "Geojit has taken an in-principle decision to hive off its commodities business into a separate entity, where BNP Paribas would not have any interest."

Geojit has over 400 branches, which would provide significant scope for the expansion of BNP Paribas.

Geojit Financial Managing Director C J George said, "We are talking to RBI and the government. It is premature to say anything. The commodity business is important to us. We have not taken a final decision as yet. We are working on ways to satisfy RBI and the government."

In 2006, the French bank had announced its plans to enter the booming Indian retail stock broking business and bought the stake in Geojit Financial Services for Rs 207 crore.

In May 2007, it was supposed to make the mandatory open offer for an additional 20 per cent stake in the broking firm. BNP Paribas could not go ahead with the open offer as the Securities and Exchange Board of India (Sebi) referred the matter to RBI, which does not want banks to be involved in the commodities business.

Foreign entities, including Man Financials and DSP Merrill Lynch, have 100 per cent subsidiaries for commodities broking business. The Indian retail broking segment has been buzzing with a lot of M&A activity in the recent times.

US-based Lehman Brothers bought out the institutional broking business of Brics Securities. JM Financial, after its split with Morgan Stanley, acquired a 60 per cent stake in ASK Securities, an institutional broking firm.

IDFC also recently hiked its stake in SSKI and Citigroup's private equity arm CVCI bought a majority stake in Sharekhan, the retail broking arm of the Mumbai-based SSKI Group.

According to a Morgan Stanley research, the trading volume in the Indian markets is expected to double to $3.2 trillion in 2010 and it projects the Indian brokerage business to grow to $3.9 billion by 2015.