Sbi, Ge Caps At Odds Over Majority In Cards Venture

Talks between State Bank of India and GE Capital to jointly float a credit card venture have hit a stumbling block, with both promoters pushing for a majority stake in the proposed venture.

State Bank and GE Capital had entered into a memorandum of understanding in March 1997 to float a joint venture to enter the credit card business. Discussions on the proposed joint venture are still on, but a senior SBI official has confirmed that the issue of majority stake is proving to be a block.

The SBI official insisted that the bank would not give a majority stake to GE Capital. State Bank is seen as an institution that represents India. In a sense, there is a strong element of nationalism involved when one talks of SBI. Under such circumstances, it is impossible to give a majority stake to any partner in a joint venture where SBI is involved without creating a controversy.

 

However, GE Capital has sought majority control in most of the joint ventures it has floated in India. Thus, GE has taken total control of its tieup with Apar for lighting equipment. Even in the case of SRF Finance, GE has taken majority control.

The option of having an equal partnership in the credit card venture is also facing opposition as it does not leave either party with clear control.

However, sources said a 50:50 joint venture might be the only way out in case the two parties reach an impasse on the issue.

On the other hand, this will not allow the incorporation of the joint ventures financials in the accounts of either promoter.

Initially, there was a proposal at State Bank that it should have a fallback option in case the memorandum of understanding with GE Capital did not fructify. This idea was later dropped.

It is pointed out that GE Capital is bringing technology to the table and SBI will bring in the franchise and the branch network

In fact, a major chunk of State Banks depositors could become credit card holders.

GE Capital was chosen as a partner after SBI rejected American Express.

The progress of the joint venture is being monitored very closely by the financial sector as it will be a marriage of two giants, which could create a shakeout in the credit card business.

The joint venture has the potential to reach critical mass in a very short span of time through State Banks branch network and race to the number one slot in terms of both the total number of credit cards and the expenditure incurred through them.

The greatest threat to existing credit card issuers is that many merchant establishments may defect to SBI as they have banking relations with it. In fact, all oil companies have a relationship with SBI.

If the merchant establishments walk over to SBI, it will get a discount on the card spend. This is a major source of income for credit card issuers.

SBI chairman M S Verma recently announced that the credit card venture would take off by January 1998.

Sources say the issue of majority control is expected to be sorted out by then.