StanChart NBFC arm stake buy plan on hold

The government has put on hold Standard Chartered Investments and Loans (India) Ltd's (SCILL) plans to acquire a 25 per cent stake in Standard Chartered Finance Ltd, a non-banking financial company.

The Foreign Investment Promotion Board, which considered the proposal, has sought the Reserve Bank of India views on the acquisition since it will lead to 100 per cent equity holding of the UK-based Standard Chartered group.

SCILL is a wholly owned subsidiary formed earlier this year by the Standard Chartered group to undertake non-banking activities. SCILL plans to buy up to 12,04,000 equity shares, (25 per cent shareholding) of SCFL, from Indian shareholders AWH and others.

SCFL was previously called Esanda Finanz & Leasing Ltd and the name was changed following worldwide acquisition of the business of ANZ Grindlays Bank by Standard Chartered Bank.

SCB through this acquisition will directly hold 75 per cent of SCFL's subscribed and paid-up equity share capital and SCILL, which is SCB's subsidiary, would hold the balance 25 per cent of the paid-up capital of SCFL.

Sources said SCB has already capitalized SCILL to the full extent of $50 million to meet the capitalization norms for NBFCs. Foreign investors can set up 100 per cent operating subsidiaries without the condition to disinvest a minimum of 25 per cent of its equity to Indian entities, subject to bringing in $50 million in cases where the foreign direct investment is more than 75 per cent.

Acquisition of shares in a company engaged in non-banking finance sector requires the approval of the FIPB.

The department of economic affairs had in November recommended that the approval be granted subject to the condition that minimum capital norms of $50 million is adhered.

StanChart had set up SCILL as an NBFC since it wanted to increase liquidity by raising commercial papers, non-convertible debentures and inter-corporate deposits in the local debt market

SCILL started with an equity capital of $7.5 million in March with plans to scale it up to $50 million over 18 months.

The idea was to raise corporate bonds and commercial papers in the market and transfer it to the bank, thereby, fetching better rates for the bank since NBFCs do not have to provide cash reserve ratio and statutory liquidity ratio on their borrowings unlike banks.