State Bank of India (SBI) might integrate its broking business with SBI Capital Markets as part of restructuring the latter’s business. If this happens, SBI Caps will focus on investment banking (debt and equity) and broking, while the project advisory and structured finance
divisions will be transferred to the parent company.
SBI began the process of restructuring SBI Caps after the Reserve Bank of India (RBI) flagged the duplication of functions at the bank and its investment banking subsidiary. The restructuring is linked to a revamp in the corporate banking business at the parent company. The organisational recast will cover the large corporate, mid-corporate and stressed asset management units.
SBI is evaluating which business model it will adopt.
This would be finalised in two to three months, said executives of the SBI group.
Two different models are adopted by competitors ICICI Securities and Axis Capital. ICICI Securities, a listed subsidiary of ICICI Bank, is in charge of the debt and equity market businesses as well as the broking business, ICICI Direct. The debt market segment is with Axis Bank and Axis Capital looks after the equity market business.
The broking business of the SBI group is managed by SBI Caps Securities, a wholly-owned subsidiary of SBI Capital Markets.
Another trigger for SBI to take the project finance
division of SBI Caps into its fold was complaints from other lenders that many loans assessed by it had become stressed assets.
A senior public sector bank executive said many banks, especially government-owned ones, sanctioned credit for infrastructure and large project loans without doing much ground work and depending on the SBI group’s assessment.
SBI Caps posted a gross income of Rs 5.4 billion in 2016-17, with a net profit of Rs 2.17 billion. It had posted revenues of Rs 6.83 billion in 2015-16, with a profit of Rs 2.83 billion.
ICICI Securities is a technology-based firm offering a wide range of financial services, including investment banking, institutional broking, retail broking, private wealth management, and financial product distribution. It was listed on the exchanges in 2017-18.
ICICI Securities’ revenues went up 32 per cent to Rs 18.59 billion in 2017-18 from Rs 14.04 billion in 2016-17. Net profit rose by 65 per cent to Rs 5.58 billion in 2017-18 from Rs 3.39 billion in 2016-17.
About future strategies, an SBI group executive said SBI Caps would get into marketing of innovative products such as InvITs, overseas bonds, masala bonds, infrastructure and real estate investment. It will also work closely with high-end small and medium enterprises and mid-corporate entities for growth, as large firms are already leveraged.
It will also bank on its credentials to set up a mergers and acquisitions business.