BNP, StanChart deals in a jam

Lack of clarity on rules delays clearance for stake acquisition in Geojit, UTI Securities

A lack of clarity on foreign banks' entry into the commodities broking business seem to be coming in the way of two of the recent high profile stake acquisitions in the booming Indian stock broking industry.

The deals are France's BNP Paribas' purchase of 33 percent equity stake in Geojit Financial Services and Standard Chartered Bank's takeover of UTI Securities.

Both Geojit Financial Services and UTI Securities offer commodities broking services through wholly-owned subsidiaries.

Sources close to the developments said banks are currently not allowed to enter commodities broking (or trading) activities, resulting in the delay in getting a go-ahead from the regulators concerned.

The lack of clarity on rules on foreign direct investments (FDI) for foreign banks in the commodities business is also a hurdle, sources said.

BNP Paribas is yet to get the clearance for the mandatory 20 per cent open offer for Geojit Financial Services' shares from the public, after the Reserve Bank of India (RBI) forwarded a clarification by the Securities and Exchange Board of India (Sebi) to the ministries concerned. The open offer was initially slated to open early in May this year.

Similarly, Standard Chartered, which has received the FIPB (Foreign Investment Promotion Board) approval for its acquisition of UTI Securities, is also awaiting regulatory clearance from the Reserve Bank of India.

BNP Paribas officials could not be contacted while a spokesman for Standard Chartered Bank said the bank was "in the last leg of securing regulatory approvals for the consummation of the UTI Securities deal."

"The rules are not clear even on FDI by banks in broking entities in the commodities space," said an investment banker. Foreign entities including Man Financials and DSP Merrill Lynch have 100 per cent subsidiaries in the commodities broking business.

Foreign private equity players also have no restrictions on acquisitions of stakes in Indian broking entities.