Rabo To Set Up Merchant Banking Subsidiary

Rabo India Finance, the 75 per cent non-banking finance subsidiary of Dutch banking group Rabo Bank, is setting up a wholly owned subsidiary to undertake merchant banking activities.

This is being done in compliance with a Securities and Exchange Board of India (Sebi) guideline which has directed non-banking finance companies to separate their fund-based and non-fund based activities, said company executives.

Rabo India Finance managing director Rana Kapoor said that his company has already sought approvals from the regulatory bodies in this regard.

The move also comes in the aftermath of a foreign direct investment (FDI) policy change announced on April 19, 2001. The new policy permits joint venture operating NBFCs that have 75 per cent or less than 75 per cent foreign investment to set up downstream subsidiaries for undertaking "other" NBFC activities.

 

This is subject to the condition that if FDI component in the JV is less than 51 per cent, $0.5 million will be brought upfront, and if the FDI is more than 51 per cent and up to 75 per cent, $5 million will be brought upfront.

If FDI is more than 75 per cent and up to 100 per cent, the capitalisation has to be $50 million, of which $7.5 million will have to be brought upfront and the balance in 24 months.

In Rabo India Finance's case, Rabobank International Netherland holds 75 per cent, while the Mumbai-based Kapoors and his associates hold the balance as mandatory resident shareholding. Hence, the company has to bring in $5 million upfront.

Kapoor said the existing two-and-a-half year old joint venture (Rabo Finance India) presently has a capital of Rs 106 crore (approx $21.5 million), of which the FDI component subscribed to by Rabo Bank at 75 per cent is $17 million.

"As far as the subsidiary is concerned , we are only complying with the Sebi guidelines for promoting other fund-based activities," he said.

Government sources said the proposal has been sent to the department of economic affairs (DEA) in the union finance ministry for perusal. An official said DEA has no objection since it conforms to the newly announced guidelines. The proposal will come up for consideration of the foreign investment promotion board (FIPB) at its next meeting, they said.