UK-based banking group Standard Chartered is setting up a non-banking financial company in India with an investment of $50 million.
The group, which has substantial interest in the Indian banking sector, will set up the wholly owned subsidiary to undertake non-banking finance activities directly or through subsidiaries.
The activities would include commercial investments, business and management consultancy, leasing and financing, government sources told Business Standard. The company has approached the finance ministry for permission to set up the venture.
Standard Chartered UK will bring in the $50 million in two forms: $25 million each will come in as equity and unsecured convertible debentures.
Sources said the investment would be made within the stipulated period of two years, as per the guidelines for foreign direct investment in the NBFC sector.
The company will issue the debentures with contractual maturity of seven years from the date of issue, at the end of which they will be compulsorily converted into equities. Hence, they will not be redeemed in cash.
The debt being mandatorily convertible into equity shares, the approved investment levels will remain unchanged by the conversion, and the minimum capitalisation norms adhered to.
As per regulations, the $50 million investment has to be upfront. In its application, the company has said it is setting up this venture to tap the emerging market opportunities in commercial financing, for instance in mid-market segments and channel financing.
It will focus on medium-sized entities embedded in the supply chain of large manufacturing companies, independent service providers and contractors for large infrastructure projects.
"The NBFC will require a wide network to reach customers. Alternatives to a physical branch network, like the Internet, will be explored in order to reach the target market at the minimum cost possible," the application said.
Standard Chartered Bank, a subsidiary of Standard Chartered Plc, is a clearing bank in the United Kingdom. The banking group focuses on emerging markets in South Asia, the Asia-Pacific, West Asia, Africa and Latin America.
The group employs over 29,000 people in more than 50 countries, and manages assets worth over $100 billion.
The group started business in India in 1858. In 2002, the businesses of ANZ Grindlays was merged into Standard Chartered, creating a network of 66 branches.
It now employs over 5,000 people and offers a range of banking and financial products to over 2.4 million retail customers and 1,200 corporate customers.
Of late the banking group has been involved in commercial financing. It invested in Idea Cellular and NDTV, and has evinced interest in buying a stake in the Escorts Hearts Institute and Research Centre.