Indiabulls Financial Services is planning to become a bank as and when the government rules permit. Gagan Banga, chief executive officer of Indiabulls Financial, has said that banking franchise is exciting as one can offer services like cash management, forex and letters of credit, reports Business Standard. Banga wants to emulate the conservative approach of HDFC Bank and Axis Bank.
"We'll survive comfortably but we are not confident enough to extend the balance sheet at a rapid pace,'' Banga said in an to Bloomberg recently. Indiabulls has put its expansion plans on hold as the credit is fast drying up due to current economic crisis. It has also slowed lending to small and medium sized businesses. Indiabulls also plans to let go 1,000 people from 20,000 strong workforce.
Indiabulls intention to turn into a bank comes at a time when global investment banking powerhouses like Morgan Stanley and Goldman Sachs have converted into bank holding companies due to financial meltdown. Others like Bear Sterns and Merrill Lynch have been acquired by commercial banks JPMorgan and Bank of America, respectively. Commercial banks are much more stable as they can count on stable consumer deposit bases. Where as investment banks must constantly depend on short and medium term money markets to fund their operations.
Indiabulls is relatively stable right now and the company has capital adequacy ratio of 27.11%. It has raised 1,000 crore in debt at an average rate of 13.5% for a three-year period in addition to the Rs 10,000 crore of current bank funding. But the shares of all the listed entities of Indiabulls group have taken a severe beating and have fallen by more than 75% in last six months.
Indiabulls has raised several million dollars in funding from steel tycoon Lakshmi Mittal and hedge fund Farallon Capital Management LLC. Some of its new ventures coming up are commodity exchange and life insurance business. Indiabulls is waiting for insurance regulator's approval for its life insurance venture with Societe Generale SA. It is also seeking to sell stake in commodity exchange to fill regulators requirements, and has received interest from Yes Bank, HDFC Bank and Indian Potash.