Srei to merge all its lending biz in a bid to become a universal bank

Srei Infra Finance will remain holding company for lending entity Srei Equipment Finance, which will now only offer fee-based services

In a bid to become a universal bank, Srei has decided to consolidate all its lending business into one vertical --- Srei Equipment Finance.  

According to a statement by Srei, the proposed step, apart from cost efficiency, will create room for the lending entity, Srei Equipment, to attract strategic investors and also prepare the company for conversion into a bank, as and when the Reserve Bank of India (RBI) permits.

Srei Infrastructure Finance will remain the holding company for Srei Equipment Finance, which will now engage only in fee-based business activities, Hemant Kanoria, chairman, Srei, told Business Standard.

Srei's infrastructure finance business has taken a backseat for a while due to lack of public-private partnership projects in the country, he added.

Srei Equipment Finance’s total disbursements in FY19 were Rs 13,972 crore, while those of Srei Infrastructure Finance were about Rs 7,257 crore. Its net worth was around Rs 4,097 crore at the end of last financial year.

“The consolidation of all lending business into one entity is an initial step towards becoming a bank. The NBFC sector has been making representations with the regulator to allow it to accept deposits or allow it to become bank. As and when RBI allows it, we will be prepared to convert into a bank,” said Kanoria.

Also, the entire process of consolidation of the lending book would take about three months, after which Srei would scout for investors, he added.

In August 2016, RBI had released guidelines for ‘on tap’ licensing of universal banks in the private sector.  It may be recalled that RBI had earlier issued norms for licensing of new banks in the private sector on February 22, 2013. Consequently, the regulator had issued in-principle approval to two applicants, IDFC and Bndhan Bank, and they have since established the banks.

In September 2015, RBI granted in-principle approval to 10 applicants to set up small finance banks.  

In January this year, Srei Infrastructure Finance had announced listing its subsidiary Srei Equipment Finance through an amalgamation scheme. Earlier, it had planned to list Srei Equipment finance through an initial public offering.

Under the amalgamation scheme, the lease business of Srei Equipment was demerged to a new company, a wholly-owned subsidiary of Srei Infrastructure Finance. The remaining portfolio of the equipment finance company was to be amalgamated with ei Infrastructure Finance.

“Subsequently, with the developing market conditions in the NBFC sector, the management and board of directors of both the companies (Srei Infrastructure Finance and Srei Equipment Finance) into one entity, since the focus for the last four years has been on growing equipment financing and reducing the infrastructure loan portfolio. The board of directors has decided to consolidate the lending portfolio in Srei Equipment as the infrastructure loan portfolio stands reduced,” said a release by Srei.