Sbi Caps To Hive Off Leasing & Hire Purchase Division

Indias largest merchant banking firm, SBI Capital Markets Ltd, is planning to hive off its hire purchase and leasing division and merge it with promoter State Bank of India.

SBI taking over SBI Caps fund-based activity is logical as banks and financial institutions are allowed to undertake hire purchase and leasing activity, said SBI Caps managing director A R Barwe.

Besides, a bank subsidiary is not permitted to float another subsidiary. Thus, we will not be floating another subsidiary, nor are we keen on having a subsidiary specially for leasing and hire purchase, he added.

SBI Caps move to hive off its merchant banking activities follows a decision by the Securities and Exchange Board of India (Sebi) to bar any merchant banking company, other than a bank or financial institution, from having both fee-based and fund-based activities under one roof. Consequently, merchant banking firms are required to either spin off their fund-based activities or shut them down. Sebi is likely to provide merchant bankers two years to segregate the two activities.

 

Sebis decision to demarcate hire purchase and leasing from broking is a fall-out of the CRB Capital Markets scam.

However, SBI is now back to square one. SBI had floated SBI Caps in 1986 because the Reserve Bank did not permit banks to undertake fund-based activity. Eventually, in 1992-93, the RBI decided to allow banks to diversify into fund-based activities.

As of March 31, 1997, SBI Caps had total assets of Rs 244 crore. Hire purchase and leasing contributed Rs 131 crore. Thus, SBI Caps total assets will effectively shrink by Rs 131 crore once its board decides to merge its funds-based activities with SBIs hire purchase and leasing division.

This has been the line of thinking in the organisation.

A decision on this is yet to be taken to the SBI management, said Barwe.

However, the companys balance sheet will not be drastically affected. The fund-based activity contributed more than 50 per cent of income, but chipped in a profit of only 20 per cent, said Barwe. As of March 31, 1997,

SBI Caps income amounted to Rs 144 crore, of which hire purchase and leasing contributed Rs 74 crore.