Vikram Pandit, Hari Aiyar to buy stake in JM Financial

Moneycontrol Bureau

The former chief executive officer of Citigroup Inc Vikram Pandit and Hari Aiyar will each buy 1.5 percent stake in JM Financial through warrants, the financial service group today announced.
These warrants will be priced at Rs 19.05 per warrant as per Securities and Exchange Board of India norms, reports CNBC-TV18's Sajeet Manghat, quoting sources. These warrants can be converted anytime in the next 18 months.
Pandit will also form a distressed asset fund jointly with JM Financial, which will have initial target capitalisation of USD 100 million. Pandit will play a key role in the expansion of the lending and financing business of JM Financial and will be nominated as the non-executive chairman of the NBFC (non-banking finance company). However Pandit or Aiyar will not be holding any stake in the NBFC, sources said.
 
In its board meeting on Thursday, JM Financial also decided to apply for a banking licence as per the Reserve Bank of India’s guidelines. Pandit will be nominated as non-executive chairman for the proposed bank as well.
Both Pandit and Aiyer will have right to pick up stake in the proposed bank entity as per the banking guideline. Sources said that Pandit and Aiyar together would own little under 10 percent because Non-Resident Indian (NRI) are not allowed to have stake beyond 5 percent as per the RBI guidelines in a banking company. Will JM Financial manage to get a bank licence?
Sources and several banking sectors experts believe that it will be a tough challenge for JM Financial to get a banking licence as the June deadline looms. Despite the fact that Vikram Pandit or Hari Aiyar being roped in and investing in the banking entity, it is still a very weak application, experts believe.  
“Unless Vikram is heading or is at least the one who is promoting the banking entity it would be a very difficult task for the RBI to grant a licence to a broking or investment banking entity,” sources said.
 
Although the RBI has relaxed norms to allow any entity to apply for a licence, but ultimately how many entities will be given a licence and on what basis is yet to be known. Broking entities like India Infoline are also looking for a banking licence. It is going to be a big challenge to distinguish between those who are most eligible and those who are not, in receiving the the license, going forward.
With such a heavyweight such as Pandit on its side, it's now up to JM Financial to decide the manner in which it will approach RBI and present its case for a banking licence.
JM Financial touched fresh 52-week high in trade on Friday.