International Finance Corporation (IFC), the private sector investment arm of World Bank, is investing Rs 315 crore in non-banking finance company (NBFC) Cholamandalam Investment & Finance Co Ltd.
IFC will provide the money in the form of a tier II debt investment by subscribing to unsecured non-convertible debentures (NCDs) to be issued by the company.
IFC’s investment would allow Cholamandalam to meet its funding requirements from a diversified source and assist in reducing reliance on bank borrowings as well as help the company scale up its operations in several low-income states.
Chennai-headquartered Cholamandalam, a financial services arm of Murugappa Group, primarily focuses in the rural and semi-urban sector with 90 per cent presence across tier III and tier IV towns and has a loan portfolio of around Rs 22,000 crore ($3.2 billion). The NBFC’s core business segments include vehicle finance, home equity loans, corporate finance, stock broking and distribution of financial products.
The promoters hold 57.8 per cent stake in the company and other shareholders include IFC, Norwest Venture Partners, Creador Capital, Multiples Alternate Asset Management, Amansa Capital Pvt Ltd and Aquarius Investments.
The firm operates through more than 500 branches in 22 Indian states, including nine low-income states. It aims to increase its customer base by 400,000 over the next few years.
The proposed investment by IFC, comes at a time when there is significant stress in the economy, affecting the commercial vehicle sector.
This comes as another debt transaction for IFC. Last week, IFC said it would lend around $91 million to PE-backed NBFCs Magma Fincorp Ltd, Bandhan Financial Services Pvt Ltd and Au Financiers (India) Pvt Ltd.
(Edited by Joby Puthuparampil Johnson)