Itc Classic All Set To Quit Merchant Banking

ITC Classic Finance, the financial services associate of the Rs 5,960-crore ITC Ltd, has decided to virtually get out of merchant banking and concentrate only on asset financing. It has told the Securities and Exchange Board of India (Sebi) that it is not seeking renewal of its merchant banking registration.

The decision by Classic comes in the wake of dismal stockmarket conditions and its own set of problems which has led to the company suffering a loss of Rs 285 crore for 1996-97.

Merchant banking, therefore, is now being seen as a difficult business and it would rather concentrate on asset financing like leasing and hire purchase activities.

 

ITC Classic sources told Business Standard: "We have already told Sebi that we don't want to push for a renewal of the license. The erosion of net worth is not an issue since the revival plan will bring in a lot of funds.''

Classic sources admitted that, over the past year, most of its merchant banking team had left for better pastures and there were virtually no merchant banking mandates handled by the company. Under such circumstances, the company does not see any reason to continue being in the business. Classic's losses almost wiped out the net worth of the company.

"Many merchant banking outfits would now refrain from seeking renewals of their licenses with Sebi. This is due to the state of the market and the dismal merchant banking scenario,'' sources in Classic pointed out.

The company would continue in the business of stockbroking and home finance through its wholly owned subsidiaries Classic Share and Stock Broking and Classic Home Finance.

Recently, Classic had decided to formally withdraw from the fixed deposits market. However, it later decided to cut down its deposits base over the year to a more manageable level. The fixed deposits base currently stands at Rs 650 crore and the company has decided to honour premature withdrawals during the year. The decision to stay off merchant banking is being taken as part of this strategy.

On the disbursements side, the company has decided to be prudent, and would evaluate proposals before making any commitments.

Besides, real estate assets acquired by the company by way of various investments are also being shed in favour of ITC as part of the revival plan. These and a major non-performing assets (NPA) recovery plan are expected to get the company back in the black by the year 2000.