Hemendra Kothari's DSP group to enter NBFC space, awaits RBI approval

Veteran investment banker Hemendra Kothari’s DSP group is set to enter the non-banking finance sector with a focus on capital markets, sources aware of the development said.

The company has applied to the Reserve Bank of India (RBI) for the licence, which is expected in a couple of months, sources added.

Capital market activities would involve equity and debt fundraising, advisory services, and broking activities.

“We will not do unsecured lending; we are a conservative group,” said a source. In November last year, the RBI tightened the regulation around unsecured loans with an increase in risk weightings.

Kothari is chairman of DSP Asset Managers, an asset management company (AMC) with a wide range of active and passive funds managed across the risk-reward spectrum.

 

In 2008, he formed DSP Investment Managers in partnership with BlackRock and bought out BlackRock’s stake after 10 years. Kothari, who is in his seventies, is the great-grandson of Purbhoodas Jeevandas Kothari, one of the founders of the BSE, earlier called the Bombay Stock Exchange.

The move comes amid regulations relating to the NBFC sector tightening and narrowing regulatory arbitrage in comparison with banks. The RBI has introduced scale-based regulation for NBFCs, in which these entities are distributed in four tiers with respect to their size. The RBI has classified 15 NBFCs with more than Rs 50,000 crore of business in the upper layer.

In India, there are close to 9,500 NBFCs, all regulated by the Reserve Bank of India. The sector is dominated by non-deposit taking systemically important NBFCs (NBFCs-ND-SI), with a share of 85.4 per cent in assets at the end of March 2023.

According to the RBI data, the sectoral distribution of NBFC credit shows the industry accounted for around 40 per cent of lending at the end of March 2023. That is attributable to infrastructure lending by large government-owned NBFCs, followed by retail lending with a share of around 31 per cent.

In 2022-23, growth in NBFCs’ credit to industry (12.8 per cent) was above that of the banking system (5.7 per cent). Credit to the retail segment by both NBFCs and banks grew at over 20 per cent. Credit by NBFCs to the services sector rose at a robust rate, albeit marginally lower than that of banks, the RBI had said.

The asset quality of the sector has been improving in recent years as gross non-performing assets (NPAs) and the net NPA ratio stood at 4.1 per cent and 1.5 per cent, respectively, as at the end of September 2023.

Meanwhile, a DSP group spokesperson declined to comment on the issue. 

Charting a new course

- The company has already applied to the Reserve Bank of India (RBI) for a licence, which is expected in a couple of months

- The move comes amid regulations related to the NBFC sector tightening and narrowing regulatory arbitrage in comparison with banks

- The RBI has introduced scale-based regulation for NBFCs, in which these entities are distributed in four tiers 

with respect to their size

- According to the RBI data, the sectoral distribution of NBFC credit shows the industry accounted for around 40 per cent of lending at the end of March 2023