The Foreign Investment Promotion Board (FIPB) has given a green light to the investment by Societe Generale (SocGen), a French banking major, in the proposed custodial services joint-venture in India with State Bank of India (SBI).
SBI, India’s largest bank, expects the JV to commence operations early next year.
SocGen, in a statement from Paris, said the proposal was approved by FIPB on September 04, 2008. FIPB’s approval is an important step in the launch of the new company, which aims to offer securities services to foreign and domestic investors,
This approval comes as a relief for SocGen after FIPB, the nodal body for clearing foreign investment in the country, had kept the proposal on hold due to objections by the Reserve Bank of India. RBI had raised concerns over its (SocGen) recent securities fraud to the tune of $7 billion.
In June, SBI and SocGen entered into understanding to form a 65:35 JV, which proposed to offer custodial and depository services in India. A SBI official associated with the project said, “Now we will have to get approvals from Sebi and RBI, and expect to commence operations in early 2009. The initial capital expenditure for operations is likely to about Rs 100 crore.”
The custodial business includes a range of security services, including safe-keeping and settlement, dividend collection and distribution, proxy voting, tax reclaim services, fund administration and providing market news and information.
The official said SBI expects to benefit from using float funds when the transactions are routed through it. Also, foreign exchange business associated with the transaction could also accrue to SBI, official added. Foreign institutional investors (FII), which are dominant players in Indian stock markets, use the services of custodial banks for settlement of transactions. This venture offers an opportunity to SBI to increase fee-based income over long term.