Tata front runner for GE Capital's stake in SBI Cards

Tata Sons working on joint bid by Tata Capital and TCS

Tata Sons, the holding company for the $109 billion Tata Group, has put its weight behind a bid for GE Capital's stake in SBI Cards valued at Rs 2,000 crore.

Bombay House, the Tata Group's headquarters, is working on a bid that will combine the strength of non-banking finance company (NBFC) Tata Capital and software giant Tata Consultancy Services.

GE in April decided to sell a majority of GE Capital assets worldwide as part of its decision to exit financial services.

The state-owned State Bank of India partnered GE Capital in 1998 for its credit card business. The partnership works through two joint ventures, SBI Cards & Payment Services and GE Capital Business Process Management Services Ltd. The former is the front end of the business focused on marketing and distribution of SBI credit cards and the latter takes care of technology and processing as a captive BPO unit. GE Capital owns 40 per cent in the SBI Cards & Payment Services and 60 per cent in GE Capital Business Process Management Services Ltd.

"GE Capital wants to exit the business completely, so the bidder has to acquire not only its stakes in the front-end business but also in the back-end company," said a person familiar with the Tata Group's plans. "Tata Sons has put its weight behind this move because it has identified financial services as a key growth area," he added.

Tata Capital has a card business running on the SBI Cards platform and the NBFC will receive a boost from an equity partnership with SBI. TCS is the technology partner for SBI's core banking platform and other value-added services.

"The combined strength of Tata Capital and TCS has made the Tata Group a front runner for the stake," said an investment banker familiar with the process of selling GE Capital's stakes. Tata Capital and TCS did not offer comments, calling it market speculation.

SBI Cards reported a Rs 300 crore net profit in 2014-15 with the marketing and distribution company bringing in Rs 267 crore.

Investment bankers said the joint ventures were expected to command a valuation of over Rs 5,000 crore, 16 times their combined net profit.

"The credit card business is in a high growth phase with the boom in e-commerce and valuations are expected to factor this in," said the investment banker. At this valuation GE Capital's stakes are expected to fetch about Rs 2,000 crore.

SBI Cards has 3 million cards in circula-tion, making it the third largest player after HDFC Bank and ICICI Bank with a market share of 15 per cent in 2014-15.

GE Capital appointed Morgan Stanley in India to find a buyer for its stakes in SBI Cards. The investment bank has sounded out private equity players KKR, Bain Capital and Baring Asia along with card business specialist Capital One, finance technology specialist Fiserv and Tata Capital. A formal sale process is expected to start soon