StanChart skips subsidiary route, sets up NBFC

Standard Chartered Bank is setting up a 100 per cent non-banking finance company, Standard Chartered Investments and Loans (India) Ltd.

Stanchart will pump in $50 million capital into the outfit which will enable the foreign bank to raise funds from the domestic market without being subjected to the Reserve Bank of India norms on priority sector lending, cash reserve ratio and statutory liquidity ratio.

The move assumes significance in light of the recent government notification that allows foreign banks to convert their branch licences into wholly owned subsidiaries. Stanchart has ruled out the subsidiary route under the current guidelines, which was confirmed by CEO Chris Low.

"We are not planning to change our status. The NBFC will supplement the bank's business and we will book new business under this arm. This will be advantageous for our customers," he added.

The bank has also ruled out any plans to acquire domestic banks as the price is not right and the voting issue continues to be a major barrier, said Low.

Without the need to provide for SLR, CRR and priority sector lending, the cost of funds will marginally come down, said M A Ravi Kumar, regional head, global markets, Stanchart.

The NBFC will supplement the bank's operations both in terms of funding base as it can access the domestic capital market plus offer good investment opportunities for its corporate customers.

Assets will comprise "chunky" corporate assets and securitised paper eminating from small-scale enterprises and retail.

The bank will focus on infrastructure including power, ports, roads, as well as IT-enabled services, healthcare and education, Low said.

Stanchart has chosen to set up a wholly owned NBFC with a capitalisation of $50 million, which will allow it to raise up to eight times the share capital.

"When we capitalise the NBFC at $50 million over 18 months, we will be able to raise up to $450 million," Kumar said.

NBFCs can leverage eight to 10 times of the equity capital, but Stanchart's business plans today assumes a leverage of eight times.

SCIL has currently been capitalised at $ 7.5 million, and will shortly raise Rs 1,000 crore through commercial paper, ICDs and non-convertible debentures.

"We are awaiting Crisil's rating for our short-term funding," said Kumar. With this, Stanchart hopes to fund big ticket corporate assets of Rs 50-100 crore.