Thu, 08/21/2008 - 04:08 — Sahad P V
The government has nixed the expansion plans of one of its own. The proposed joint venture between SBI, the largest commercial bank in the country, and Societe Generale (SocGen) for providing custodial and depository services has hit a roadblock with the foreign investment promotion board (FIPB), the nodal body for clearing foreign investment in India rejecting the fund infusion from SocGen.
SBI had, in June, signed an agreement with Societe Generale Securities Services (SGSS), a division of the French banking giant SocGen Group, to offer custodial and depository services in India through a 65:35 JV. SBI was to appoint the CEO and SocGen the deputy CEO for the JV. The JV was to have a paid up capital of Rs 80 crore out of which SocGen was to bring in FDI worth Rs 28 crore. It is for this fund infusion that FIPB was approached for a green signal.
The JV would have made SBI the first Indian public sector bank to enter the custodial service business. Currently, the big players in this market are HSBC, Deutsche Bank and Citigroup. Overseas banks bring their global relationships into the country as a part of the business comes from foreign institutional investors (FIIs), who have a business relation with foreign banks in other markets.
As per this report: http://epaper.timesofindia.com/Repository/ml.asp?Ref=RVRNLzIwMDgvMDgvMTEjQXIwMDEwMw==&Mode=HTML&Locale=english-skin-custom
the RBI has raised concerns regarding few international scandals related to SocGen. The central bank has
specifically referred to two instances including a fine imposed on SocGen by a Zurich-based exchange, SWK, for violating trading rules by allowing authorised traders to make transactions under other people's names, besides allowing an unauthorised trader to trade on the exchange. According to RBI, SocGen was warned about the breach of rules, but failed to act.
The RBI has also referred to the securities scandal which surfaced in Europe early this year where one rogue trader had taken massive fraudulent directional position and concealed it through fictitious transactions. This cost SocGen more than $7 billion. Based on RBI's feedback, the FIPB has rejected SocGen's proposal to bring in its equity contribution for the proposed JV.
The proposed JV was the second tie-up between the two banks. In 2004, SBI and SocGen formed a 63:37 joint venture in the asset management business. This business, however, remains intact.
