Chola DBS To Top Taking Deposits
Business Line

Shriya Bubna & Rajendra Palande

November 06, 2006, Mumbai: Chennai-based Cholamandalam DBS Finance has decided to convert into a non-deposit taking non-banking finance company (NBFC) to ensure that Singapore's DBS Bank, which has a 37.48 per cent stake in it, does not have to reduce its stake to comply with new guidelines.

The Reserve Bank of India (RBI) issued guidelines late last week barring all banks - domestic as well as foreign banks having operations in India - from holding more than a 10 per cent stake in an NBFC that accepts deposits.

Cholamandalam DBS Finance was earlier Cholamandalam Investment and Finance Company.

The NBFC was re-christened after DBS Bank acquired the stake in June 2005 and it became a joint venture between the Murugappa group and DBS Bank. DBS Bank also operated in India through two branches, one each in Mumbai and Delhi.

"On October 19, our board had approved a proposal to become a non-deposit taking NBFC. We have filed a request with the RBI and are working on the modalities," said Atul Pande, managing director, Cholamandalam DBS Finance.

The total borrowings of the NBFC stood at Rs 1,699.84 crore at the end of March 2006, which included fixed deposits of Rs 119 crore. "Deposits form less than 5 per cent of our liabilities. Liabilities are moving towards banks and mutual funds. Deposits are dying out as an instrument of future liabilities (for NBFCs)," said Pande.

Other foreign banks like Citibank, Standard Chartered Bank and Barclays Bank, which have operations in India, also own NBFCs but do not take deposits.

Cholamandalam DBS Finance is one of the country's largest NBFCs with a gross asset base of Rs 2,015 crore at the end of March 2006. It offers vehicle finance, corporate finance, capital market finance and also consumer finance, a business it entered into after DBS Bank became its shareholder.

The RBI has said banks that own more than a 10 per cent stake in a deposit-taking NBFC have two months to submit plans to bring down their stakes to 10 per cent.

The RBI has also put a restriction on the extent to which NBFCs that do not take deposits can leverage their balance sheet. The central bank said these NBFCs could not borrow more than 10 times their net owned funds.

The net owned funds of Cholamandalam DBS Finance stood at Rs 315.72 crore on March 31, 2006, with reserves and surplus contributing Rs 277.71 crore and share capital at Rs 38.01 crore. Its borrowings on March 31, 2006, were only 5.69 times its owned funds.