Reserve Bank Rejects Ge Capital Subsidiary Plans

GE Capital had planned to set up two wholly owned subsidiaries, one for hire and ends purchase and lease financing activities and the other for bill discounting.

The first subsidiary was to have an initial capital investment of Rs 50 crore which will raise Rs 150 crore over a few years.

The second subsidiary to be set up for bill discounting had been allocated an initial investment of Rs 75 crore and planned to employ around 500 people.

However, the proposal has been set aside by the Foreign Investment Promotion Board (FIPB), which has asked the RBI and the Securities and Exchange Board of India (Sebi) for their comments.

 

RBI sources said that it has already responded to the Foreign Investment Promotion Board stating that GE Caps does not yet qualify to set up such subsidiaries.

According to the Reserve Bank guidelines, any finance company must have a minimum of 75 per cent of its assets in hire purchase and bill discounting separately to set up a subsidiary.

The other stipulation is that the company has to be in business for at least three year. GE Caps does not meet both these requirements. It has only two balance sheets till date and commenced operations in late 1993.

Unlike other finance companies, GE Capital is not in the retail segment of the market.

For instance, Kotak Mahindra has a large chunk of its hire purchase and leasing business in the car finance sector. GE caps on the other hand is more into portfolio buyouts.

Kotak, which has been in business for quite some time has allowed to set up a subsidiary for automobile financing.

GE Caps has been in the debt market off late tapping investors through the private placement route.

GE Capital has raised over Rs 200 crore through very aggressive pricing also.