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Rabobank seeks nod for merchant banking arm

Shaji Vikraman

Partha Ghosh

NEW DELHI, Jan. 18

THE Netherlands-based Rabobank International has sought the approval of the Foreign Investment Promotion Board (FIPB) to set up a fully-owned subsidiary for merchant banking.

The proposal is likely to come up for consideration at the board's next meeting, probably on January 25, Government sources told Business Line. The application was filed with the Government last week and is being scrutinised by the Secretariat of Industr ial Assistance in the Industry Ministry. The Department of Economic Affairs in the Ministry of Finance is the administrative Ministry in the case. Any FIPB approval will be subject to clearance by the DEA.

The sources said Rabobank has proposed an equity investment of Rs. 5 crores for the subsidiary.

Rabobank, the only international bank which has an AAA credit rating, commenced operations in India last year through a separate subsidiary. The bank has identified agri-business financing as a niche segment given its strengths in this field.

The existing Indian arm, Rabo India Finance Pvt Ltd, was set up in collaboration with three senior Indian bankers, Mr. Harkirat Singh, Mr. Rana Kapoor and Mr. Ashok Kapoor.

With the growing pace of restructuring in both the private and public sector in India, the bank reckons that there are plenty of opportunities for an independent subsidiary company to boost business. The focus of the proposed merchant bank will be on mer gers and acquisitions, tender offers and buy-backs, according to senior officials.

Rabobank has already got into the action in this segment, helping Nicholas Piramal close out a deal, last month, to acquire three brands from the US-based Eli Lilly.

The three Indian partners control 25 per cent of the equity in the holding company for the Indian operations, with the foreign bank holding the balance.

The bank joins a growing list of firms who are keen to set up fully-owned subsidiaries to operate as non-banking finance companies (NBFCs) in India. The list includes the US investment banking major, JP Morgan, Citibank and Capital International. However , in the case of these companies, the Government had indicated that setting up a 100 per cent owned company for a downstream activity was not in conformity with the norms laid down by the Finance Ministry.

Although foreign companies can set up a wholly-owned holding company, it is mandatory for them to have a resident equity holding of 25 per cent when they venture into other business activities. The equity investment required for controlling 75 per cent o f this downstream activity by the foreign partner is $5 millions.