The tightening of lending norms by Indian banks has fuelled the way for global financial institutions to shift focus to the non-banking finance business. The latest entrant who eyes a strong foothold in this segment is Canada’s largest property and casualty insurer, Fairfax Financial Holdings.
A $32-billion financial institution based out of Toronto, it had opened an Indian office through its subsidiary, Fairbridge Capital, last year. The latter had hit the headlines after agreeing to buy Thomas Cook Group Plc’s 77 per cent stake in its India operations for about $150 million in May this year. Harsha Raghavan, former head of private equity (PE) entity Candover Investments, had been appointed to head the India office of Fairbridge Capital.
Fairfax is owned by Prem Watsa, an Indian-born Canadian investor. He took control of Fairfax in 1985. Fairfax is also the largest shareholder in Research in Motion, developed of the BlackBerry smartphone and tablet. It has a 10 per cent stake.
When spoke to, John Varnell, vice-president of corporate development at Fairfax Financial Holdings, said, “It is our company policy to not comment on future investment plans until there is a transaction to disclose.” According to sources, it also has plans to float a PE fund in India.
Fairfax is already engaged in India’s insurance space through ICICI Lombard General Insurance Co, the largest private sector general insurance company, a 74:26 venture between ICICI Bank and Fairfax.
Eyeing the fast growth potential in India, more global financial majors have set up non-banking finance company (NBFC) arms.
Rajeev Suneja, partner, financial services, Ernst & Young, said: “In an NBFC, 100 per cent foreign direct investment is allowed. NBFCs can further invest in areas where external commercial borrowing is restricted, like real estate. Also, it is much easier to structure loans using a domestic entity. Thus, it makes sense for foreign entities desirous of play in the debt market to use an NBFC as a vehicle.”
According to sources in the sector, TPG Capital, an America-based PE major, was also looking to float an NBFC in India, on the lines of KKR, another PE major.
The US-based KKR has made investments worth $1 billion in the Indian market last year through its NBFC, KKR India Financial Services. Also last year, Goldman Sachs joined hands with Everstone Capital to start an NBFC named Indostar Capital.
Lack of restrictions by the government, as compared those on Indian banks, also make NBFCs an attractive investment vehicle for investors. Banks have to keep 4.25 per cent of their deposits with the Reserve Bank of India and a statutory liquidity ratio (SLR) of 23 per cent. SLR is the minimum amount of total deposits that a bank needs to invest in liquid assets such as approved securities and government bonds.
