Private Equity Play in the Banking Sector

Public sector banks have the lion's share of the banking transactions in India, dominating it by controlling 80% of the business. Therefore, reform of public sector banks is critical to the health and strength of the financial system. Over the years, India's public sector banks have compared unfavorably to their private sector counterpart. There is high focus now on the resurrection of PSU Banks. The basic reform needed is to remove their statutory character and register them under the Companies Act, like private banks; the prescription being to reduce government shareholding in PSBs to below 49%. Meanwhile, they will need operational autonomy, coupled with increased accountability.

1. Overview of the liberalization process of PSBs.
2. Can PSBs gain lost Ground?
3. The ministry and the regulator still have a controlling mentality, preventing the PSBs to be true market players. How can this mindset progress to the next level of thinking?
4. Will the resurgence of PSBs retard the growth trend of Private Sector banks?
   

Distressed Asset Reconstruction: PE Opportunities?

Indian Distressed Asset Market had never been so vibrant. The initiatives taken by regulators to empower lenders with SARFAESI Act and CDR system have been success by far. During 2003 to 2006, gross NPAs declined at 7% CAGR in spite of growth at 19% CAGR in gross advances during this period.

Apart from recovery, sale of Distressed Assets have contributed significantly to this development. Estimated investments in distressed asset have grown from around US$ 1 billion in calendar year 2005 to over US$1.4 billion expected during CY 2006. Industry expert estimates market size of US$35 billion of Distressed Asset market including distressed and near-distressed assets. Given 19% CAGR growth in advances, the distressed asset market is expected to growth in similar pace.

Experts believe many of Indian NPA assets have fair potentials of recovery and are largely secured against tangible assets including high value real estate. A large number of these distressed players have high Going Concern Value (GCV) as compared to Recoverable amount, representing enormous wealth creating opportunities for PE investors in a more conducive environment for asset reconstruction.

NBFCs: Taking Shape

The NBFC business model is highly customer centric with a deep perception of customer needs, presenting unique last mile credit delivery. The inherent advantages of NBFCs over banks, as well as government focus on making them more efficient, are not only attracting foreign banks but private equity players too. Foreign banks find NBFCs very attractive because such entities primarily target the consumer finance segment, which embodies a risk profile marked by high risk and high gains.

1. What is the government doing to give NBFCs a level playing ground? How will it affect the existing NBFCs?
2. Will existing NBFCs held by banks go up on the market for grabs?
3. The PE fraternity has spotted opportunities of investing in NBFCs. What are the implications of these new norms to the PE investor? Can PE players be part of the reorganizing dynamics in this space?
4. Ingredients of a successful NBFC.
   

Microfinance: Pot of Gold at the Grassroots Level?

India is the largest emerging market for Micro Finance. In India around one fourth of the population lies below the poverty line. The Indian government is highly focused on bringing the excluded population into the financial system. An enormous unmet demand exists in the excluded population for financial services. At this end of the spectrum, the VC&PE fraternity has begun to glimpse an opportunity at the bottom of the pyramid, with the surfacing of close to a dozen funds dedicated to investment in microfinance institutions.

1. Microfinance is likely to be regulated by the National Bank for rural Development (NABARD). How does it impact the investor?
2. Government has great emphasis on treating microfinance on a priority level. What is it doing to encourage investments in this space?
3. How can PE Players tap the enormous opportunities in total inclusion?
4. Prompt to recognize the immense untapped potential in the microfinance sector, what kind of risks do the PE Players face?
   

Consolidations: Is Bigger Better?

Under WTO, in 2009, the Indian financial sector is slated to open up to foreign banks and truly enter into the global financial arena. This move is expected to usher in a number of Global banks taking large stakes and control over banking entities in the country through alliances and M&As.

To meet stringent prudent capital adequacy norms under Basel II, M&A poses as a viable answer to gaining that critical mass and doing away with redundancies. These dynamics have invoked the interest of PE players worldwide.

1. Consolidations have unanimously accepted advantages. Will there be a place for smaller niche players?
2. How long will the growing momentum of M&As in India continue? Can we see the emergence of world-class and global sized Indian Institutions?
3. Deals are opportunistic and have to be grabbed aggressively and quickly. How fast and accurate is the due diligence process followed by the PE Players?
4. M&As are being driven by strategy, resulting from a well thought out game plan, with accountability to achieve merger synergies. How can the PE investor spot good opportunities?