State Bank of India and GE Capital plan to set up two joint venture companies to enter the credit card business in India. One company will focus on the marketing and distribution of cards and services and the other will handle the processing activities of the business.
Top State Bank officials point out that State Bank will have a 60 per cent stake in the marketing and distribution company and GE Capital will have 40 per cent. However, in the processing company GE Capital will have a 60 per cent stake and State Bank will hold the balance.
The decision for the majority stakes has been based on the inherent strengths of the individual companies. State Bank is bringing its brand equity and distribution network to the table and hence will have a majority stake in the distribution company. GE Capital on the other hand will bring in the systems and technology and thus will have the lions share in the processing company.
More From This Section
GE Capital and SBI had signed a memorandum of understanding to form a joint venture to enter the credit card business. The credit card business is driven by technology. It needs strong back office operations and also installation of electronic data capture machines in high sale points for instantaneous transfer of credits and debits.
GE Capital has the capability to supply and set up these systems.State Bank on the other hand has a strong branch network and a very large depositor base. The marketing and distribution company will be able to have a substantial number of SBIs depositors as its credit card customers. Since SBI has the profile of its depositors credit, evaluation for the purpose of issuing credit cards will not be a problem.
The entry of SBI in the credit card business is being closely watched by the market. By splitting the activities of the credit card business into two companies the prospect of disputes to gain majority stakes at a later date recedes. Individual partners will hold majority stakes in ventures where they bring the maximum to the table.
However, the issue of pricing services offered by the individual companies might prove to be a thorny issue. Currently, O P Sethia, managing director, SBI, is handling the discussions with GE Capital.