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To diversify its revenue streams, Bank of India is planning to enter the merchant banking space via BOI Shareholding Ltd. In the run up to venturing into merchant banking, the public sector bank intends to buy Bombay Stock Exchange’s entire shareholding in their joint venture BOI Shareholding Ltd (BOISL).
Another reason why BOI is seeking to get into merchant banking — which, among others, involves providing services related to project advisory and structured finance, capital markets and mergers and acquisition advisory — is to offer a full spectrum of financial services to its customers.
According to its 2012-13 annual report, the bank holds 51 per cent stake in BOISL while the balance is held by the Exchange. It has a paid-up capital of Rs 2 crore.
Speaking to Business Line , Vijayalakshmi R. Iyer, Chairperson and Managing Director, BOI, said her bank will venture into the area of merchant banking.
Pointing out that the bank was working on getting a licence (from the market regulator), the BOI chief said: “We need to put in place proper logistics for that (merchant banking)…..
“We are fine-tuning our processes because we have to be right there. Otherwise, we will end up with penalties….We expect it to be operational in a month.”
Right time to start Iyer observed that this is the right time for BOI to start-off on the path of merchant banking. “Of course, there is not much activity in the equity market now. But then presuming it will pick up, we will be in readiness. Meanwhile, we can handle company dividends, which will come in May, June and July,” she explained.
The idea behind undertaking merchant banking activity under the aegis of BOI Shareholding is to minimise the cost of operations. Besides, the profits made by BOISL will boost the bank’s bottomline.
If the bank ventures into merchant banking via the 100 per cent subsidiary route then, according to the BOI CMD, “We need not have people on payroll; we can go for outsourcing and reduce costs.”
Given that the Reserve Bank of India Governor wants to activate the bond market, Iyer said the proposed merchant banking outfit will be prepared to handle corporate and retail bond issuances.
“Many of our customers go to the commercial paper market (to raise resources). We can handle the entire issue for them….A PSU tag always gives more confidence to the customers and investors,” she said.
BOISL, which was floated in 1989, has been carrying out the rolling and weekly settlements of trades executed by member brokers operating on the BSE.
It is also a Depository Participant of the National Securities Depository Ltd and the Central Depository Services (India) Ltd and provides depository services to the clearing members and investors.
“We will takeover the entire stake (of BSE in BOISL). We will do the valuation and pay them. Maybe, we will have to pay them Rs 8-10 crore.
“Though this is an insignificant amount, the amount of work which we can do under BOI Shareholding is substantial,” said Iyer.
Public sector banks which have a merchant banking subsidiary include State Bank of India, IDBI Bank and Bank of Baroda.
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