Private Equity Pulse

on
Financial Services

March 2010

Listing of Advisory Firms … Page 54

Executive Summary 3

PE and M&A in Financial Services 6

What PE/VC investors think 10

Entrepreneurs' Perspective 13

Fund Manager Interview 15

- Dhiraj Poddar, Standard Chartered Private Equity

PE in Financial Services 18
- By Sanjay Doshi, KPMG India Private Limited

Evolution of Financial Inclusion 26

- By Siddharth Shah & Chittaranjan Datar
Nishith Desai Associates

Microfinance - Path to Selfsufficiency 31

- By Sasha Mirchandani, Prashant Choksey, Anil Joshi
Mumbai Angels Venture Mentors

Tapping the Bottom of the Pyramid with Microfinance 38

- By Samir Bali, Ernst & Young India

Regulatory Framework for Microfinance in India 43

- By Shivi Agarwal, Dhir & Dhir Associates

Payment Business in India 49

- By Manek Fitter, Ernst & Young India

Listing of Advisors with special focus on Financial Services 54

Executive Summary
In June 2009, when the world had not yet emerged out of the global liquidity
crisis, the CEO of an Indian investment bank gave an interview to a
business newspaper that was titled “The next decade will be a golden age
for the financial sector”. He predicted that Financial Services in India will
witness growth and penetration similar to that of telecom services over the
last decade. Betting on this rosy growth outlook, his firm - that is currently
focused on institutional business - is expanding aggressively into asset
management and retail broking. Echoing this sentiment, the founder of a
leading microfinance firm wrote in an article, "With the exception of the
mobile telecom, perhaps no other sector has grown as fast and as big in
terms of customer base as the microfinance sector in India in the past two
decades. Today, the MF sector lends Rs 1,000 crore (11 digits) every
month!"

It is no wonder that the BFSI (Banking, Financial Services and Insurance) is

among the top industries when it comes to attracting Private Equity
investments. And PE investments in Microfinance continued to grow rapidly
right through 2008 and 2009 even as investments in other sectors
witnessed a steep decline.

In his interview for this report, Dhiraj Poddar of Standard Chartered Private
Equity points out how the Financial Services sector is an attractive point of
entry for investors to gain exposure to the domestic consumer and
infrastructure sectors. Apart from sectors within BFSI, providers of
technology and analytics services to this industry present another attractive
investment opportunity, he adds. Poddar says PE investors would also look
forward to investing in the capital intensive and long gestation business of
Life Insurance.

In his article on PE in Financial Services, Sanjay Doshi of KPMG points out

that opportunities abound for Private Equity in virtually every facet of the
Financial Services industry considering the expected growth of the Indian
economy combined with rising income levels, focus on infrastructure
spending, emphasis on financial inclusion, emergence of wealth managers
and expected growth of the insurance industry. Among the hurdles facing
PE investors, he includes regulatory restrictions on investment limits in
banking and insurance sectors and uncertainty in valuations of insurance
companies.

Siddharth Shah of legal advisory firm Nishith Desai Associates traces the
evolution of financial inclusion in India. Highlighting how from the time of the
Sahukars and Shroffs (money lenders) in pre-colonial India to the advent of
institutionalized banking, the banking sector in the country has witnessed

3
sweeping changes. The nationalization of banks in 1969 led to the
expansion of branch network increasing lending to agriculture and small
business and pulling in millions of people into the formal financial system.

Highlighting how the new delivery channel of Micro Finance Institutions is

enabling efficient delivery of credit to the neediest sections of society, he
indicates that The Micro Financial Sector (Development and Regulation)
Bill 2007, when cleared by Parliament, will provide the required regulatory
framework for this sector.

Highlighting the potential of Microfinance to alleviate poverty by providing

access to productive assets and financial resources, Anil Joshi, Prashant C
and Sasha Mirchandhani of angel investor group Mumbai Angels indicate
how MFIs would need US$3-5 billion over the next 4-5 years. The hunger for
capital among MFIs stems mainly from the need to meet mandatory Capital
Adequacy Requirements specified by RBI and to invest in branch network,
human capital and technology. From an investor’s perspective, the sector’s
rapid growth, high returns and relative immunity to global developments,
are strong attractions.

In his article, Samir Bali of Ernst & Young points out how the rapid growth of
microfinance has been aided by partnerships with PE firms and banks. The
revision of mobile phone banking guidelines (to enable low value
transactions), the Unique Identification Number (UIN) programme and the
establishment of a ‘Credit Information Bureau’ to encourage safe lending
practices, will provide the framework to boost further growth. He, however,
cautions that as the Indian MFIs develop a pan Indian network and increase
in size, the lack of common standards for technology, product design, the
gaps in legal and regulatory framework and the ability to tackle multiple
borrowings will pose challenges. Bali predicts that the sector will witness
consolidation over the next few years as some of the better capitalized firms
(including PE-backed ones), embark on acquisitions for expanding their
reach and size.

Indicating how a fact-finding study by the RBI observed that some of the
microfinance institutions (MFIs) appeared to be competing to reach out to
the same set of poor, resulting in multiple lending, Shivi Agarwal of legal
advisory firm Dhir & Dhir highlights the need for a general regulatory
environment for the microfinance sector that can provide oversight,
independent of the organizational form of the MFIs. The article provides an
update on the status of the Micro Financial Sector (Regulation and
Development) Bill, 2007 (which had lapsed) and on the steps towards self
regulation within the sector.

4
While writing on the payment business, Manek Fitter of Ernst and Young
highlights the factors which will throw up huge opportunities for PE in this
capital intensive and technology driven sector. The growing acceptance of
electronic payment systems from the presently low penetration levels, a
supportive regulatory stance, initiatives like the formation of the National
Payments Corporation of India (NPCI) and the issuance of UIN, coupled
with the rapid growth of telecom infrastructure and the existence of evolved
and proven payment systems, will help this sector achieve healthy and
sustainable long-term growth in India.

5
 Private Equity and M&A
in Financial Services
PE Investments in BFSI - By Sector Value*

Microfinance
2% 11% 7% NBFC
18% Broking
13% Banking
Financial Tech
3%
14% Investment Banking
13% Stock Exchange
14% Mutual Fund
Housing Finance
4% 1%
Asset Reconstruction
Others
* Jan ‘04 - Dec ‘09

PE Investments in BFSI - By Sector Volume*

Microfinance
NBFC
3% Broking
3% 14% 23%
Banking
2%
Financial Tech
5%
Investment Banking
5% 20% Stock Exchange
6%
8%
11% Mutual Fund
Housing Finance
Asset Reconstruction
Others
* Jan ‘04 - Dec ‘09

PE Investments in BFSI - By Year

Amount (US$ M) No. of Deals
3500 70

3000 60
US $ Millions

2500 50

2000 40

1500 30

1000 20

500 10

0 0

2004 2005 2006 2007 2008 2009

Source: Venture Intelligence PE Deal Database

6
 PE Investments in MicroFinance PE Investments in NBFCs
Amount (US$ M) No. of Deals Amount (US$ M) No. of Deals
200 18 400 12
180 16
350
160 10
14
300
140
12 8
120 250
10
US $ Millions

US $ Millions
100 200 6
8
80
150
6 4
60
4 100
40
2
20 2 50

0 0 0 0

2004 2005 2006 2007 2008 2009 2004 2005 2006 2007 2008 2009

PE Investments in Broking PE Investments in Banking

Amount (US$ M) No. of Deals Amount (US$ M) No. of Deals
700 14 600 8

600 12 7
500
6
500 10
400
5
400 8
US $ Millions

US $ Millions

300 4
300 6
3
200
200 4
2

100 2 100
1

0 0 0 0

2004 2005 2006 2007 2008 2009 2004 2005 2006 2007 2008 2009

Top PE Investments in BFSI*

Company Business Description Amount Investor(s) Date

(US$M)

HDFC Housing Finance 660 Carlyle Jul-07

National
Stock Exchange Stock Exchange 375 General Atlantic,
SAIF, Goldman Sachs Jan-07

Sharekhan Broking 200 Citi Jan-07

Indiabulls
Financial Services NBFC (Consumer Finance) 143 Farallon Capital Jun-06

India Infoline Broking 141 Orient Global Dec-07

Source: Venture Intelligence PE Deal Database * Jan 2004 to Dec 2009 – by Investment Size

7
 M&A in BFSI

By Sector - Volume

Banking
15% 11% Broking
6%
5% NBFC
16% 3%
Financial Tech
Asset Management
18% 26% Investment Banking
Housing Finance
Others

M&A in BFSI - By Year

45 41

40

35 32
30
30
25
25

20 16

15

10
5
5

0
2004 2005 2006 2007 2008 2009

Source: Venture Intelligence M&A Deal Database

8
 M&A in BFSI - Deal Type*

15%
23%
Outbound
Domestic
Inbound
62%

* Jan ‘04 - Dec ‘09 By Volume

Source: Venture Intelligence M&A Deal Database

Top M&A Deals in BFSI*

Target Co. Acquirer Sector Amount Stake Date

(US$M) (%)

Centurion Bank of HDFC Bank Banking 2400 Feb-’08

Punjab

DSP Merill Lynch Merill Lynch Investment 500 50 Dec-’05

Banking

JM Financial Morgan Stanley Financial 445 49 Feb-’07

Services

IL&FS Investsmart HSBC Financial 261 73 May-’08

Services

GE Transportation Shriram Transport NBFC 252 100 Dec-’09

Financial Services Finance (Transport
(Truck Finance Finance)
Portfolio)

Source: Venture Intelligence M&A Deal Database * Jan 2004 to Dec 2009 – by Investment Size

9
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What PE / VC Investors Think
Here are the key highlights of a poll conducted among Private Equity & Venture Capital firms for

10
 How Investors Rate Each Sector
100

80

60

40

20

Mutual Fund
Broking

Banking

Insurance Distribution

Asset Reconstruction
Investment Banking
Microfinance

Commercial Finance

Infrastructure Finance

Mortgage / Housing Finance

Consumer Finance
Stock Exchanges

Service Providers to FIs

Personal Finance Services

-20

-40

-60

% Voting Less than % Voting 5 or More

Investors chose Microfinance, Infrastructure Finance, service providers to

financial services firms (like back-offices to mutual funds, etc.), Banks,
Stock Exchanges and Insurance Distribution companies as among their
favourite sectors within the industry.

Interestingly, even though Microfinance tops the

Is Microfinance getting overhyped
to bubble-like proportions? chart in terms of attractiveness (thanks to the large
market and supply-demand gap), investors are
simultaneously also concerned on too much money
No chasing companies in this sector. Borrowers using
25% loans from one microfinance company to repay
loans from another are also a concern.
Yes
75%

Will you invest in

Stock Broking firms
Investors also seem to be moving away from
to ride the
viewing investments in broking firms as a way of “rising equity penetration" theme?
tapping into the much talked about under-
penetration of equity ownership among the Indian
middle-class. The undifferentiated nature of their
offerings, volatility in the earnings (which is linked Yes
No
40%
strongly to stock marketed movements) and rise in 60%
retail investments via mutual funds and insurance
companies are among the dampeners for
investments in stock broking firms.

11
 Despite the regulatory bottlenecks, most investors
Is the "banking sector
consolidation / acquisitions surveyed feel the appetite of MNC banks to acquire
by foreign banks" theme still valid? fast-growing Indian banks has not dimmed. "PE
investments in this sector have been limited not
because of lack faith in the theme. Restrictive
covenants on voting rights and related matters,
No
Yes coupled with concerted activism by select
40%
60% shareholder groups in various private sector banks,
have been the dampener," said one of the investors
surveyed.

Have the new SEBI rules

regarding distribution commissions
made AMCs less attractive?

The survey takers were split almost equally when it

came to the impact of the new SEBI rules banning
front loading of distributor commission onto mutual
Yes
fund investors. No
48%
52%

PE investors surveyed cited regulatory restrictions as the most important

challenge in making investments in the Financial Services sector. Some
investors are also concerned about the government's keenness to tilt the
playing field in favour of Public Sector financial institutions. Apart from
ensuring the integrity of the promoter/team handling large capital, other key
issues investors face in this sector include the relative paucity of risk
assessment services; market uncertainty and intense competition.

12
 Entrepreneurs’ Perspective
Interview with Gajendra Nagpal, Founder & CEO, Unicon Financial

VENTURE INTELLIGENCE: Why did your company choose to

go in for Private Equity financing?

GAJENDRA NAGPAL: In 2007, we were a relatively new company

and not many people knew us at that time. Also, there was no track
record of the company and it was difficult to put across people’s
profile to the masses in case we decided to go in for an IPO. Hence,
the option of coming out with an IPO was ruled out. Also, the process
would have taken a long time. In comparison, PE financing is a quick
and effective way of raising financing for growth. We decided to go in
for PE financing in Nov 2007 and by March 2008, we had already
Gajendra Nagpal, raised the money.
Unicon Financial
VI: What do you think are the main value-additions brought in
by your PE investors apart from the capital?

GN: The PE investors have brought a lot of experience to the table and have
helped us in the growing up process. They have helped us to get in to the
culture of maintaining a strong MIS and fiscal discipline. Although being a
private company, we behave very much like a public company in terms of
maintaining accountability and functioning of our board.

VI: The recent poll we conducted among PE investors indicates that

investments into stock broking firms are no longer very attractive.
What according to you are the key differentiators/aspects that can
make brokerage firms more attractive to investors?

GN: Broking is still attractive to the PE investors. Although equity broking is

coming under pressure due to decreasing brokerages, currency and
commodity broking is still an attractive option. Wealth Management is
another attractive option. We have already diversified ourselves in the
wealth management business in a big way. In future, many brokerages
would move from pure execution to a mix of execution and advisory. We
have been targeting affluent wealth segment which is set to grow rapidly in
the coming years. Also, as some of our clients in this segment grow to Ultra
High Net Individuals, we could service the HNI and Ultra HNI segments of
clients, which are typically targeted by large banks. We are also in to other
financial products like Insurance distribution/property broking etc. and their
contribution is significant to the overall top line of the company.

13
 Entrepreneurs’ Perspective
Interview with P.N.Vasudevan, Managing Director, Equitas Microfinance

VENTURE INTELLIGENCE: Why did your company choose to

go in for Private Equity financing?

P.N.VASUDEVAN: This being a company in the financial services

sector, there are regulatory norms related to capital adequacy.
Hence capital is a constant requirement to support growth and being
an unlisted company, we tend to go for private equity to support our
equity requirements

VI: What do you think are the main value-additions brought in

by your PE investors apart from the capital?
P.N.Vasudevan,
Equitas Microfinance PNV: Typically they bring in networks and contacts. Even one good
reference or connection could lead to a significant benefit to the
company

VI: The recent poll we conducted among PE investors indicates that

some investors fear that the microfinance space is being over-hyped
and that there is danger of rise in defaults. One of the specific
concerns for example is that multiple firms are lending to the same
individuals which can lead to rising defaults as well as a fall in
margins.

What is your opinion on this?

PNV: This year, around 30 leading NBFC-MFIs that account for around 85%
of the Indian market have come together to form Alpha Micro Finance
Consultants with a view to make available credit bureau services to MFIs in
the country.

Through this exercise, MFIs will be able to identify each of their members
individually with their unique ID. This ID will empower MFIs to be completely
certain of any borrower’s prior exposure to other MFIs.

14
Fund Manager Interview
Dhiraj Poddar
Standard Chartered Private Equity

Venture Intelligence recently spoke to Dhiraj Poddar of Standard

Chartered Private Equity (SCPE) on his firm’s outlook on the BFSI
industry. SCPE’s existing investments in BFSI include M&M
Financial and Federal Bank.

Venture Intelligence: What is your firm’s overall view of the

investment opportunities in the Indian Financial Services
space?

Dhiraj Poddar: We think that Financial Services is an attractive way

to gain exposure to the domestic Consumer and Infrastructure sectors in
India. Asset backed lending, be it vehicle financing, mortgage financing,
lending for infrastructure projects or SME financing are high growth areas.
We look for differentiated business models with relatively higher barriers to
entry run by conservative, yet ambitious teams. We also think Insurance
and Asset Management are attractive segments.

VI: What is your outlook for the Microfinance sector in 2010? Will the
much anticipated SKS IPO catalyze more investments into MFIs? Will
the regulatory uncertainties in the segment act as impediments to
investments in this sector?

DP: A successful IPO by SKS should act as a catalyst for more listings by
micro-finance companies that may have reached optimal size and scale.
The microfinance companies, given their fast pace of growth, would remain
capital hungry. Their listing will help to broaden the investor base that can be
tapped, in addition to PE (as source of funds.)

The sector, along with opportunities, does have its challenges, and
regulatory issues are one of them. I think companies with strong systems,
high quality management teams and discipline can make the difference in
overcoming some of the issues.

15
VI: Tell us about your investment in M&M Financial Services (Mahindra
Finance) and your expectations from this investment?

DP: Mahindra Finance is focussed on rural and semi urban markets, which
are under-banked and currently serviced by either money lenders or some
public sector banks. The company is mainly into vehicle financing – Utility
Vehicles (UVs), cars and tractors. It is also building its mortgage finance and
insurance distribution businesses.

Mahindra Finance gives us an exposure to the fast growing rural markets,

which are increasingly emerging as big consumers for the auto industry.
The company enjoys high entry barriers, given the difficulties of access and
service of a pan India consumer base...not unlike the Microfinance Industry.
This ensures good growth opportunities and healthy profit margins for the
company. One of the key differences compared to Microfinance is the
nature of lending – it is secure as it is backed by an asset. Further, UVs and
tractors are assets to earn livelihood in many cases, which improve the
nature of security.

We are also very excited about Mahindra Finance’s foray into mortgage
lending, where again the company will be addressing a highly under-
penetrated market.

VI: What do you think are the key issues facing PE investors in
Financial Services?

DP: One of the challenges for PE investors is that most sizable financial
services companies have the ability to access public markets with ease.
This takes away the need for PE capital. Also, most PE investors in India do
not have specialised operating knowledge in the sector, which limits the
extent of value addition.

I think PE investors will either need to specialise over time or take earlier
stage bets. Valuations are another issue – especially in certain sub-
segments. Brokerages were trading at steep valuations earlier and now
(valuations of) microfinance companies look rich.

VI: How attractive are stock exchanges & commodity exchanges in

terms of PE investments?

DP: There is a strong investment thesis clearly reflected in the amount of PE

capital the segment has attracted. It revolves around the low level of
penetration of savings products and equities, as well as growing risk
management needs of companies. Again, there are some regulatory
challenges (especially in the commodity side).

16
Exchanges enjoy very high entry barriers and in some sense, the winner
takes it all. So, it is important in our view to pick the right platform as well.

VI: Your outlook on the Investment Banking sector?

DP: It is a people business with relatively low predictability on revenues…I

don’t see much of a play there for PE unless the Investment Banking
platform is bundled with other revenue streams like broking or distribution
services.

VI: Are you excited by ancillary services to BFSI (for example Back-
office to funds, technology providers etc.)

DP: Absolutely! We as a fund invested in I-flex in 2003, a technology

provider to the BFSI space, which did well for us. As companies in the BFSI
sector grow, especially in a vast market like India, the role of outsourcing
companies is likely to change from being a cost reduction option to
becoming business enablers. I would expect some of the BPO companies,
which are already big in the BFSI segment and are presently servicing the
west, to begin focussing on domestic markets. I think Analytics in Financial
Services is also just starting out – the need to cross-sell and mine existing
data for risk management should drive the business for high quality analytic
services.

VI: Any other segments within the sector which excite you?

DP: Insurance – especially Life Insurance is exciting. There are high entry
barriers – in the form of distribution reach, branding, service quality etc. The
value increases over time as the pool of underwritten business grows so
long as the risk management is sound, which is great from the perspective
of a long term investor. In India, most life insurance businesses are capital
hungry and will take time to accrue value – which PE investors would be
better positioned to understand and appreciate.

17
 Private Equity (PE)
in Financial Services
By Sanjay Doshi
Director, Corporate Finance,
KPMG India Private Limited

YEARS GONE BY
The Indian financial services sector has attracted private equity capital in
excess of USD 4 billion during the last 3 years1. A significant share of this pie
was absorbed by brokerage houses, microfinance companies, stock and
commodity exchanges, and mortgage and consumer financing institutions.
However, in comparison to 2007, when the sector attracted private equity
capital in excess of USD 3 billion; 2009 was one of the most challenging
years the sector has seen, with private equity inflow significantly reducing to
2
the tune of USD 300 million .

1&2
Venture Intelligence

18
 While this sector was severely affected with reduced inflow from private
equity post the global financial crisis, as well as the liquidation of global
financial organisations like Lehman Bros; it demonstrated remarkable
resilience due to a combination of factors such as systematic stability,
conservative credit policies and robust regulatory monitoring.

The sector has kept pace with the growing needs of corporates and other
borrowers. Banks, capital market participants and insurers have developed
a wide range of products and services to suit varied customer requirements.
Moreover, the Reserve Bank of India (RBI) has successfully introduced a
regime whereby the interest rates are largely determined by the market.

TRANSFORMATIONAL CHANGES

The Indian financial services industry is on the verge of a major growth

phase. India’s GDP is expected to grow in excess of 8 percent over the next
3
few years , and financial services sector is likely to have a significant role to
play in achieving this growth. With recent and expected regulatory
changes, the dynamics of the business is likely to change significantly. It
may not only bring in a fresh set of challenges for various players across the
financial services spectrum but may also present a set of opportunities to
fringe players by offering them a level playing field (for e.g. removal of the
entry load on many mutual fund mobilisations provides opportunity to newer
entrants in the distribution play). This is also an interesting time for private
equity players as it provides them with an opportunity to participate in this
play by investing in companies that are well placed to face the challenges.

It is imperative to understand the key influencers, regulatory or market-

oriented, which are likely to have an impact on the sector in the next few
years.

Deferral of opening up of banking sector

In view of the current global financial market turmoil, the RBI has decided to
continue with the current policy and procedures governing the presence of
foreign banks in India, thereby indicating a deferral of the opening up of the
banking sector for foreign players. Given the current regulations on the
restrictions of voting rights and equity stake in banks, banks in need of
capital are likely to continue to face the challenge with limited avenues to
access capital funds.

Removal of entry load on Mutual fund mobilisations

Though the regulation has been perceived as customer friendly, it has

affected many distributors.
3
Eleventh five year plan

19
 This change has consequently forced the distributors to focus more on
distribution of insurance products (which provides high commission on the
first year premium) as compared to the mutual fund products.

With customers averse to paying advisory fees to distributors, mutual funds

and distributors are likely to rethink their distribution strategy, which may
lead to a paradigm shift in the business model.

Recommendations made by Swarup Committee (on Investor

Awareness and Protection)

Swarup Committee has recommended the removal of upfront commissions

paid to insurance agents. Although this is likely to bring parity between
distribution of various financial products (for e.g. mutual fund products and
unit linked insurance products, etc.), it has been vehemently opposed by
insurance companies and agents. If implemented, this could significantly
change the distribution landscape.

Infrastructure spending

Indian Infrastructure opportunity has been valued at approximately USD

500 billion during the 11th plan period (FY2008-12) and approximately USD
4
950 billion during the 12th plan period (to attain a GDP growth of 9 percent) .
This spells significant opportunities for road developers, power equipment
suppliers and construction companies. This expected growth in
infrastructure spending is likely to result in a significant demand for
construction equipments and hence may provide a huge boost to
construction equipment financing, project financing, etc. Improvement in
road infrastructure is likely to boost the road transportation thereby
increasing the demand for commercial vehicle financing business.

Introduction of Infrastructure Finance Companies 5

In view of the critical role played by Non-banking Finance Companies

(NBFCs) in providing credit to the infrastructure sector, RBI has recently
introduced a fourth category of NBFCs as “Infrastructure Finance
Companies” (IFCs). IFCs have the benefit of higher credit concentration
limits as compared to other NBFCs. Further, RBI has also increased the
exposure limits for banks lending to IFCs. This will provide more head room
to NBFCs and thereby increasing their participation in infrastructure growth.

Thrust on Financial inclusion

Financial inclusion is one of the key priorities of the government and is

expected to be a significant driver of growth.
4
Eleventh five year plan
5
RBI Notification dated February 12, 2010

20
 The key success of financial inclusion relies on ensuring access to various
financial products and services to the low income groups at a reasonable
cost. Considering that rural retail markets are expected to reach USD 58
6
billion by 2015 , and financial products have yet to reach this section of the
society, there is a tremendous opportunity for various players to penetrate in
the sector.

Consumer spending

Rising household income levels, an ever increasing middle-class

population and a favourable demographic age group profile towards young
and middle age generation is likely to increase the per capita spending of
Indian consumer significantly, thereby resulting in higher demand for retail
financing.

Consolidation

The various sub-sectors within the financial services are likely to go through
a consolidation phase given the number of players operating in the sector
and also the current market dynamics. Some of the key drivers of
consolidation include:

4
Restrictions on access to funds may drive weaker banks to merge with
stronger banks

4
Fragmented broking industry is likely to undergo a consolidation phase
with large players providing a wide spectrum of financial services and
mid-sized players having a niche carved out for themselves

4
Asset Management companies on account of overcrowding of space
and the recent change in regulation

POTENTIAL OPPORTUNITIES FOR PE PLAYERS

Integrated play in broking, wealth management, distribution,

investment banking

Several brokerage firms capitalised on the buoyancy in the Indian capital

market to transform themselves from a traditional broking outfits into
providers of various services required by retail customers and thereby
starting a new chapter in the broking industry. With support of private equity
capital, large and mid-sized brokerage houses diversified into margin
financing, investment and merchant banking, distribution and wealth
management businesses. However, a drastic fall in the capital market had
a negative impact on the broking and margin financing business. Further,
the removal of the entry load has significantly impacted the distribution
revenue of these players.
6
CII-Yes Bank Study

21
 With the impending implementation of the Swarup committee report, the
brokerage and distribution companies are ideally placed to transform
themselves from a mere distributor into wealth managers providing advise
that is primarily driven by customer needs than the commission structure of
the financial product. With the expected size of USD 1 trillion of wealth
management industry7, early movers stand to gain a higher share of the
highly promising wealth management market.

Further, with volumes on equity markets expected to rise due to growth in

economy and increased retail participation over the next few years, many
large brokerage houses may require capital for their growth through organic
as well as inorganic route.

Microfinance

Microfinance companies have been able to service the unserved population

through leverage from commercial banks who are unable to extend their
reach to this segment directly. Thus, they have been facilitators of the
objective of ‘financial inclusion.’ This sector has been quite successful in
attracting private equity capital even during the lean period following
financial markets turmoil. The key factors attracting private equity players
are expected growth rate of around 40 percent for the next 5 years,8 growth
opportunities in under penetrated geographies like Maharashtra, West
Bengal, Gujarat, etc., lower delinquencies, attractive spreads and hence
attractive return on equity. However, the sector also faces challenges which
are very unique to this business, and need to be assessed.

Insurance

Insurance companies are in need of capital to maintain the solvency

requirements and for funding their expansion plans. Opportunities in this
space are broadly divided into three segments:

4 Life Insurance: Given the long break-even period, the opportunity

arises with established players who have been in this business for more
than 8 years and would be nearing break-even. The key value drivers are
expected growth due to the under penetrated semi-urban and rural market,
potential in improvement of profitability on account of improving persistency
ratios and productivity enhancement, unlocking of the embedded value of
in-force business.

7
Celenet
8
Intellcap

22
 4 Non-life insurance: Many of the private sector insurance
companies who have entered the market pre-2001 have achieved break-
even. However, given the potential available for lowering the combined
ratio (i.e. loss plus operating expenses), decline in commissions, and
expected improvement in underwriting and operation efficiency, these
companies are expected to improve their future profitability.

4 Health insurance companies: Standalone health insurers are

well poised to grow, given the under penetrated health insurance market in
India. However, investment horizon could be longer, given the strained
profitability due to stiff competition from multi-line non-life insurers. New
business models such as managed healthcare are likely to emerge with
health care providers turning to health insurance.

Although, there are significant opportunities for private equity players in the
insurance domain, some of the key challenges include:

4Uncertainty in valuations of the Indian insurance companies due to

lack of valuation benchmarks coupled with a relatively nascent
Indian insurance market as compared to the matured western
markets

4Regulatory restrictions on the foreign direct investment limits

(currently being 26 percent) thereby restricting direct private equity
infusion (as most of the insurance companies have a foreign JV
partner holding 26 percent stake)

Infrastructure Financing, Asset based financing and retail financing

NBFCs have served as an important medium for access to credit for

customers who do not have access to banking credit. NBFCs have created
a niche for themselves in the areas of SME financing, construction
equipment financing, infrastructure financing, commercial vehicle financing
and retail loans. There have been hugely successful business models,
wherein NBFCs due to its distribution reach, strong collection infrastructure
and customer relationships have generated higher returns driven by low
cost of operations, lower delinquencies and attractive spreads.

With the introduction of IFCs, large NBFCs and Corporates may look
forward to create IFCs with aim to achieving higher growth trajectory
thereby requiring capital infusion on regular basis. Further, the expected
growth in retail and asset based financing (at an estimated CAGR of 20
percent over next 5 years)9, NBFCs is likely to need an infusion of capital to
meet its financing requirements and also to maintain capital adequacy.

9
SSKI, Cris Infac, KPMG analysis

23
Private equity infusion has been a favoured route by many players in the
sector and the trend is expected to continue in future.

The housing finance market, which faced a slowdown during the recent
downturn, is also expected to pick-up. However, with increasing
competition in the housing finance market, there is likely to be an increased
focus on the Loan against Property (LAP) business. A high risk and higher
return product, LAP provides an opportunity to mortgage financiers to attain
a higher growth rate and earn higher returns.

Ancillary sectors

The advent of technology has revolutionalised consumer banking. The

increase in the usage of ATMs, credit cards, internet banking options,
mobile banking has opened up various opportunities for players in sectors
ancillary to financial services. Given the nascent stage of this business and
with high growth potential, the players are likely to be in need of capital to
fund their expansion plans. However, lower profitability margins in this
business results in the return on capital primarily dependent on and driven
by higher volumes, thereby reducing the attractiveness of this business.

Banks

Growing financing requirement driven by infrastructure spending,

impending consolidation in the banking sector and expected progressive
reforms would be the key drivers for private equity investments in banks.
However, the restriction on voting rights and limits on shareholding is likely
to limit private equity players to acquire only up to 5 percent stake in a Bank.

CONCLUSION

Indian financial services sector is at an inflexion point given the expected

changes in regulations and market landscape. The anticipated economic
growth and the importance of a healthy and well regulated financial services
market are likely to be key growth drivers for the various sub-segments
within this sector. However, keeping in mind the limitations on account of
structural and regulatory matters, private equity players should seek to
adopt focused strategies in order to identify opportunities, which meet their
investment objectives.

The views and opinions expressed herein are those of the author and do not
necessarily represent the views and opinions of KPMG in India. The
information contained is of a general nature and is not intended to address
the circumstances of any particular individual or entity.

24
Sanjay Doshi brings with him over 12 years

of experience with more than 9 years in

transaction services. He has advised on

more than 40 private equity deals across

various sectors. Sanjay has significant

experience in the financial services sector

having worked on more than 30 transactions

in the financial services space in the last 5

years with KPMG.

Sanjay Doshi

Director,

Corporate Finance,

KPMG India Private Limited

Mobile: +91 98202 98832

Email:: sanjaydoshi@kpmg.com

25
 Evolution of
Financial Inclusion
By Siddharth Shah, Principal & Chittaranjan Datar, Associate,
Nishith Desai Associates

The committee on Financial Inclusion headed by former Governor of the

Reserve Bank of India (“RBI”) describes it as “The process of ensuring
access to appropriate financial products and services needed by vulnerable
groups such as weaker sections and low income groups at an affordable
1
cost in a fair and transparent manner by mainstream Institutional players.”
In layman terms it means making finance and related services available
within the reach of the common man.

1
(www.rbi.org.in)

26
 Early credit delivery in India:

Credit delivery in India right till its colonization by Britain was mainly through
indigenous money-lenders and country bankers, who still hold sway in the
villages and towns. Institutional banking was brought to India by the British
with the setting up of banks in presidency towns.

Banks in pre-independence and newly-independent India were privately

owned. There were entry barriers for customers based on the social,
economic and political status. Such banks catered to only a select few and
most rural Indians had to rely on the expensive and oft unfair loan terms of
indigenous bankers (shroffs, sahukars etc.) Also, loan recovery was brutal,
often lending to pathos like seen in the famous cinematic work “Do bigha
zameen”. A law2 to contain this phenomenon has been passed and it
continues to regulate such moneylenders activities.
3
Banks continued to be privately owned till their nationalization in 1969.
Post-Nationalization there was an expansion of branch network to
unbanked areas, leading to increased lending to agriculture & small
business and pulling in of millions into the formal financial system. Slowly
but surely the banking and financial services industry grew and expanded.
Further steps included the setting up of Regional Rural Banks (“RRBs”) and
Urban Co-operative Banks (“UCBs”). All the above institutions were
prescribed lending norms meant to include small and medium enterprises
(“SMEs”) and the agricultural sector, as “priority sectors”. Besides the
banks credit societies lent their bit to grassroots credit delivery. The industry
added another channel, the Non Banking Finance Companies (“NBFCs”) to
augment credit delivery.

2
Money lenders acts passed by various states seek to cap rates of interest and deny certain modes of recovery to
unregistered lenders.
3
14 banks were nationalized in 1969 & a further 8 in 1980 under the Banking Companies (Acquisition and Transfer
of Undertakings) Act, 1970 & The Banking Companies (Acquisition, etc.) Act 1880 respectively. Nationalization
was guided by Article 39 of the Constitution which puts the onus on the State to direct its policy towards securing

(b) that the ownership and control of the material resources of the community are so disturbed as best to sub serve the
common good; and

(c) that the operation of the economic system does not result in the concentration of wealth and means of production
to the common detriment. Statistics seem to suggest these objectives were achieved by the nationalization.

27
 However the need of the hour in 21st century Indian economy is to ensure
the delivery of banking and financial services at an affordable cost to the
vast sections of unbanked, disadvantaged and low income groups. That
said, a recent survey by the RBI found that between 1995 and 2006, the
number of registered traditional moneylenders increased 56% to 19,627
from 12,601. Though much harder to quantify, unlicensed lenders are
believed to have made similar gains, the survey says.

So what lies ahead and how does Financial Inclusion happen?

4
Agencies like NABARD set up with the avowed aim of ensuring Financial
Inclusion are operationalised in the Indian economy. The turn of the century
saw the advent of a new delivery channel viz Micro Finance Institutions
(“MFIs”). Operating mainly as Self Help Groups (SHGs), through their
linkages with banks, they seek to ensure efficient delivery of credit to the
neediest sections of the economy like village workers, artisans, craftsmen,
herdsmen, women’s groups and the like. As on March 31, 2009 61 lakh
savings linked and more than 42 lakh credit-linked SHGs cover about 8.6
crore poor households. The inclusion of lending to such MFIs by banks as
part of their priority sector lending targets is another welcome step towards
achieving financial inclusion.
5
For the marginal farmer the Kisan Credit Cards provide for revolving cash
credit facilities with unlimited withdrawal and payments to meet production
credit needs, cultivation and contingency needs.

With the RBI playing facilitator more endeavors like the Banking
Correspondent and Business Facilitator models seek to take credit closer to
the needy through “branchless banking”. The Mahatma Gandhi National
Rural Employment Guarantee Act, 2005 envisages payments through “no-
6
frills” bank accounts for work done by participants. They will also be eligible
for bank credit through such accounts. The Government in an initiative
aimed at regulating micro-finance activities with a view to ensuring smooth
passage of credit to the underprivileged and unbanked sections of society
has drafted the Micro Financial Sector (Development and Regulation) Bill
2007. The bill is under consideration of the Parliament and once passed
would lent itself to regulating the channelization of requisite funds to the
micro-finance sector.

4 NABARD : National Bank for Agriculture and Rural Development,

incorporated in 1981 under the NABARD Act

5 Introduced by NABARD and RBI in 1998-99 for small and marginal farmers

6 Bank accounts opened with no balance requirements with basic banking services including credit.

28
The MF industry, which is at the forefront of facilitating financial inclusion, is
seeing consolidation. Also funding from the traditional sources like banks is
being augmented by a keen interest from Private Equity funds and Venture
Capitalists. Some shining examples are Sandstone and Sequoia’s
investment in SKS Microfinance and Sequoia’s investment in Equitas. More
abounds on the horizon. The recent Union Budget promises to see the roll
out of more bank-channeled funding for poor and marginalized persons. All
such well meaning measures implemented well, efficiently and effectively
will certainly lead to greater financial inclusion.

To quote the American realist and literary critic William Dean Howells, “An
acre of performance is worth a whole world of promise.”

The authors Siddharth Shah, Principal - Corporate & Securities Practice,

and Chittaranjan Datar, Associate, member of Banking & Financial Services
Industry Team and Microfinance Team, work for Nishith Desai Associates,
Mumbai. The views expressed here are personal. The authors wish to thank
Ms Radhika Mathur, Intern for her inputs.

29
 Mr. Siddharth Shah is a Principal at Nishith
Desai Associates (www.nishithdesai.com).
As head of the Corporate and Securities
practice group, he has led several of the
capital market transactions involving
domestic and overseas offerings. He heads
the firm’s Funds Practice Group and is a
member of the firm's M&A and Banking and
Structured Finance groups. With over 13
years of professional experience, he brings a wealth of knowledge and
understanding of the capital markets.

Mr. Chittaranjan Datar is a member of the

Microfinance and Banking and Financial
Services Industry teams at Nishith Desai
Associates. With considerable work-
experience and industry knowledge of
mortgage financing, having spent 13 years
plus with a leading mortgage lender in India,
he combines a unique flavour of law and
industry experience and contacts. His past
assignments included work areas relating
to mortgage loans, developer finance, loan recovery and security
enforcement. He was also a member of a task-force engaged in rolling
out rural finance projects in his previous employment. Socially too he
is focused on “financial inclusion” and empowerment having held the
post of District Director – Microfinance Projects for Rotary
International’s District 3030 in the year 2008-09.

30
Microfinance -
Path to Selfsufficiency
By Sasha Mirchandani
Prashant Choksey
Anil Joshi
Mumbai Angels

A layman understanding about microfinance is not more than a provision of

small loans to the poor. However, there is something more to it. “Reaching
those excluded from formal financial services”. On the face, both of them
appear similar; however, their distinction makes the latter more relevant.
The first definition talks about providing loans only to poor, while the later
definition does not discriminate on economical / social basis. It attempts to
cover all those who are, hitherto, unreachable. So, this definition focuses
more on geographical exclusion than social exclusion. A definition by
Journal of Microfinance states that “Microfinance is arguably the most
innovative strategy to address the problems of global poverty.”

31
Albeit the Indian economy is booming and showing robust path ahead, but it
also the house to one of the largest poor in the world. In order to achieve
long and sustainable growth it is very important for a nation to take its entire
populace together. The Government nationalized banks to ensure that the
banks reach the masses. However, even till today a significant portion of the
population is still not associated with any formal financial institution mainly
due to strict banking norms and collateral based finance. This gap created a
need for different financing model especially catering to the needs of the
poor who could not offer collateral. A few years back, the success of
Grameen Bank (GB) of Bangladesh grabbed the attention of many people
around the world. The GB model has shown the way to reach up to the
maximum number of people without even accumulating NPAs. In fact, their
loan recovery rate was astonishingly high at around 98%. This model also
brought a lot of social changes into the society.

Microfinance refers to loans, savings, insurance, transfer services and

other financial products targeted at low-income clients. Microfinance
institutions (MFIs) are using various Credit Lending Models throughout the
world. Some of the models are listed below.

Associations:

This is where the target community forms an 'association' through which

various microfinance (and other) activities are initiated. Such activities may
include savings. Associations or groups can be composed of youth, or
women; they can form around political/religious/cultural issues; can create
support structures for micro enterprises and other work-based issues. In
some countries, an 'association' can be a legal body that has certain
advantages such as collection of fees, insurance, tax breaks and other
protective measures.

Bank Guarantees:

As the name suggests, a bank guarantee is used to obtain a loan from a

commercial bank. This guarantee may be arranged externally (through a
donor/donation, government agency etc.) or internally (using member
savings). Loans obtained may be given directly to an individual, or to a self-
formed group.

Bank Guarantee is a form of capital guarantee scheme. Guaranteed funds

may be used for various purposes, including loan recovery and insurance
claims. Several international and UN organizations have been creating
international guarantee funds that banks and NGOs can subscribe to, to
lend or start micro credit programmes.

32
Community Banking:

The Community Banking model essentially treats the whole community as

one unit, and establishes semi-formal or formal institutions through which
microfinance is dispensed. Such institutions are usually formed with
extensive help from NGOs and other organizations, who also train the
community members in various financial activities of the community bank.
These institutions may have savings components and other income-
generating projects included in their structure. In many cases, community
banks are also part of larger community development programmes which
use finance as an inducement for action.

Cooperatives:

A co-operative is an autonomous association of persons united voluntarily

to meet their common economic, social, and cultural needs and aspirations
through a jointly-owned and democratically-controlled enterprise. Some
cooperatives include member-financing and savings activities in their
mandate.

Credit Unions:

A credit union is a unique member-driven, self-help financial iinstitution. It is

organized by and comprised of members of a particular group or
organization, who agree to save their money together and to make loans to
each other at reasonable rates of interest.

The members are people of some common bond: working for the same
employer; belonging to the same church, labor union, social fraternity, etc.;
or living/working in the same community. A credit union's membership is
open to all who belong to the group, regardless of race, religion, color or
creed.

A credit union is a democratic, not-for-profit financial cooperative. Each is

owned and governed by its members, with members having a vote in the
election of directors and committee representatives.

Grameen Bank Model:

The Grameen model emerged from the poor-focused grassroots institution,

Grameen Bank, started by Prof. Mohammed Yunus in Bangladesh. It
essentially adopts the following methodology:

A bank unit is set up with a Field Manager and a number of bank workers,
covering an area of about 15 to 22 villages. The manager and workers start
by visiting villages to familiarize themselves with the local milieu in which
they will be operating and identify prospective clientele, as well as explain

33
the purpose, functions, and mode of operation of the bank to the local
population. Groups of five prospective borrowers are formed; in the first
stage, only two of them are eligible for, and receive, a loan. The group is
observed for a month to see if the members are conforming to rules of the
bank. Only if the first two borrowers repay the principal plus interest over a
period of fifty weeks do other members of the group become eligible
themselves for a loan. Because of these restrictions, there is substantial
group pressure to keep individual records clear. In this sense, collective
responsibility of the group serves as collateral on the loan.

Group:

The Group Model's basic philosophy lies in the fact that shortcomings and
weaknesses at the individual level are overcome by the collective
responsibility and security afforded by the formation of a group of such
individuals.

The collective coming together of individual members is used for a number

of purposes: educating and awareness building, collective bargaining
power, peer pressure etc.

Individual:

This is a straight forward credit lending model where micro loans are given
directly to the borrower. It does not include the formation of groups, or
generating peer pressures to ensure repayment. The individual model is, in
many cases, a part of a larger 'credit plus' programme, where other socio-
economic services such as skill development, education, and other
outreach services are provided.

Intermediaries:

Intermediary model of credit lending position is a 'go-between' organization

between the lenders and borrowers. The intermediary plays the critical role
of generating credit awareness and education among the borrowers
(including, in some cases, starting savings programmes. These activities
are geared towards raising the 'credit worthiness' of the borrowers to a level
sufficient enough to make them attractive to the lenders.

The links developed by the intermediaries could cover funding, programme

links, training and education, and research. Such activities can take place at
various levels from international and national to regional, local and
individual levels.

Intermediaries could be individual lenders, NGOs, micro enterprise /

microcredit programmes, and commercial banks (for government financed

34
programmes). Lenders could be government agencies, commercial banks,
international donors, etc.

Non-Governmental Organizations:

NGOs have emerged as a key player in the field of micro credit. They have
played the role of intermediary in various dimensions. NGOs have been
active in starting and participating in micro credit programmes. This
includes creating awareness of the importance of micro credit within the
community, as well as various national and international donor agencies.
They have developed resources and tools for communities and micro credit
organizations to monitor progress and identify good practices. They have
also created opportunities to learn about the principles and practice of micro
credit. This includes publications, workshops and seminars, and training
programs.

Rotating Savings and Credit Associations:

Rotating Savings and Credit Associations (ROSCAs) are essentially a

group of individuals who come together and make regular cyclical
contributions to a common fund, which is then given as a lump sum to one
member in each cycle. For example, a group of 12 persons may contribute
Rs. 100 per month for 12 months. The Rs. 1,200 collected each month is
given to one member. Thus, a member will 'lend' money to other members
through his regular monthly contributions. After having received the lump
sum amount when it is his turn (i.e. 'borrow' from the group), he then pays
back the amount in regular/further monthly contributions. Deciding who
receives the lump sum is done by consensus, by lottery, by bidding or other
agreed methods.

Village Banking:

Village banks are community-based credit and savings associations. They

typically consist of 25 to 50 low-income individuals who are seeking to
improve their lives through self-employment activities. Initial loan capital for
the village bank may come from an external source, but the members
themselves run the bank: they choose their members, elect their own
officers, establish their own by-laws, distribute loans to individuals and
collect payments and savings. Their loans are backed, not by goods or
property, but by moral collateral: the promise that the group stands behind
each individual loan. While India is one of the fastest growing economies in
the world, poverty runs deep throughout country. About two thirds of India’s
more than 1 billion people live in rural areas, and almost 170 million of them
are poor.

35
 Although urban migration continues, three out of four of India’s poor live in
rural areas of the country where poverty is a chronic condition especially
among the scheduled castes and tribe communities.

One major cause of poverty in India is lack of access to productive assets

and financial resources. Women are generally the most disadvantaged
people in Indian society, though their status varies significantly according to
their social and ethnic backgrounds.

It’s been seen that the economical development of the country depends
upon the way people live and spend. So from the last five years it’s been
seen that Microfinance companies in India did a good job and are keeping
the same. In fact some of the MFIs made it to the Forbes’ list of leading
Microfinance companies. Lured by its 100 per cent growth and the fact that it
seems immune from adverse global developments, private equity
companies and venture capitalists are upbeat on investment in MFIs.

“Many professionals have identified the MFI business as good potential

towards entrepreneurship. They also need capital on a continuous basis, as
micro finance is a capital-intense business, since as business keep growing
one needs capital to maintain CAR, Capital infusion also becomes essential
since MFIs are at a growth stage,”

It is estimated that MFIs would need over USD 3 to USD 5 billion over the
next 4 to 5 years. MFIs mainly need money to meet mandatory CAR
specified by RBI and to invest in branch network, human capital and
technology. Experts say the sector is immune to developments in the global
economy, with 25 per cent returns over a three to five-year period. Also, the
sector is growing at 100 per cent yearly. Experts say there are very few
opportunities at this growth pace, with such low delinquency on loans.
There is a rush to fund this segment, as there is a good amount of money to
be made,”

Sasha Mirchandani Prashant Choksey Anil Joshi

Note: This article has been prepared after taking inputs from various books and articles.
The purpose is to share basics on the industry and not to infringe anybody's rights.

36
Firm Name: Mumbai Angels Venture Mentors

Website: www.mumbaiangels.com

Postal Address of Headquarters :

111, Industrial Area, Cine Max Lane, Sion (East),
Mumbai - 400 022, India

Tel :9323810171 Fax: 022-24072949

Contact Person & Email:

Anil Joshi:
Cell: 9323810171

Prashant Choksey:
Cell: 9820036111

IT products and services, Business Process Outsourcing /

Knowledge Process Outsourcing, Retail, Biotechnology
and Pharmaceutical, Internet, Media and Entertainment,
Telecommunication, Consumer

37
Tapping the
Bottom of the Pyramid
with Microfinance
By Samir Bali
Partner - Business Advisory Services & National Leader, Insurance Sector
Ernst and Young India

The microfinance sector in India witnessed consistent growth even through

the economic upheaval. The government has harnessed the potential of
this sector to consolidate its priorities and advance its agenda of poverty
alleviation and financial inclusion. Financial inclusion of the underprivileged
is ongoing as microfinance institutions (MFIs) tap the bottom of the pyramid
and self-help groups (SHGs) evolve in remote parts of India. Moreover, the
profitability of MFIs has been facilitative in the increased acceptance of this
business model.

38
 Lending Growth of MFIs Trends in disbursement (MFIs)

120 20 350

100 300 287

16
15
INR Billion

80 250

INR Billion
Million

60 9 10 200 183 185

114
5 150
40 110
95
3 60 5 100 72
20 102
32 45 66 88
16 50 45 44
0 0 30 27
15
0
Mar-06 Mar-07 Mar-08 Mar-09
FY05 FY06 FY07 FY08 FY09
Loan Outstanding Customers SHG-bank linkage MFIs Total

The potential of microfinance sector can be gauged by the substantial

estimated demand of INR1.2 trillion of microcredit from 120 million
households. Currently, the Indian microfinance sector has provided about
INR160 billion worth of loans as of March 2009, out of which MFIs account
for INR114 billion, which has increased by 90% over 2008. In total, this
sector consists of over 3,000 MFIs and NGOs, with the leading 10 MFIs
accounting for 74% of outstanding loans.

The progressive growth witnessed in the sector has been supported by two
underlying factors. First is the expanding reach of MFIs and the
establishment of their pan-India presence. Second is the increased
participation of private equity funds and banks. As these entities are
bringing in more funds, the sector is getting further integrated with the
capital markets. Approximately 11 private equity deals, amounting to
USD143 million, were finalized between January 2009 and October 2009 as
compared with eight deals worth USD61 million during the same period last
year. The massive growth of the sector has been supported by some key
initiatives undertaken by MFIs:

Forging partnerships: MFIs are partnering with local vendors to

strengthen and expand their outreach in a profitable way. These local
partners include players in the organized (postal department) or
unorganized sector (local shops).

Establishment of a credit information bureau: The launch of two

new credit information bureaus- High Mark in Dec 2009 and CIBIL
and MFIN in March 2010 fills a much needed gap in the market. These
services will aid MFIs to avoid exposure to multiple borrowers and
expand in a controlled manner, leading to greater financial inclusion.

M-banking: Reserve Bank of India’s (RBI) revision of mobile phone-

based banking guidelines has created a framework to enable low
value transaction amounts. The ability to transfer funds via such
an easy method is also likely to accelerate the flow of funds to the
remote sections of India.

39
Furthermore, reforms undertaken by the government are also significantly
aiding the sector’s growth. The ‘unique identification program’ is a step in
the right direction as it will meet the objective of reducing customer
acquisition costs. Moreover, the RBI is also encouraging banks to increase
lending to the weaker sections of society. Organisations like the Rashtriya
Mahila Kosh have played a significant role in wholesaling, advocacy, and
market development. These initiatives are helping the sector to expand in
an orderly fashion, but MFIs still face fundamental issues that need to be
addressed:

Multiple borrowings: MFIs’ customers engage in multiple borrowings in

order to refinance existing loans or to invest. This can result in substantial
non-performing assets as multiple borrowing is most certain to weigh
heavily on the customer’s repayment capacity.

Legal and regulatory framework: As MFIs increasingly become

mainstream organizations, the legal and regulatory framework becomes
ever more important. Regulations, whether they are from external
regulators or form within the industry, are not only required for orderly
growth, but shall also help MFIs expand their service offerings such as
accepting deposits.

Lack of common standards: As the sector focuses on financial

inclusion and expands its reach, the lack of common standards for
technology, e.g., smart cards, pose a hindrance. This translates into lack
of information about customers, thus pushing the customer acquisition
costs and making due diligence ever more difficult.

Product design: A challenge for MFIs is the assumption that pure debt is
expected to improve the standard of living for people. There is a need for
a mechanism for monitoring of the end-use of the finance.

Overall, the Indian microfinance sector is witnessing substantial growth and

is also overcoming challenges. Compared with microfinance models in
other parts of the world, the Indian microfinance model of MFI and SHG is
growing rapidly.

Various microfinance models working effectively in different countries

include Grameen Bank in Bangladesh, Bank Rayat in Indonesia and
BancoSol in Bolivia. Grameen Bank, one of the largest MFIs in Bangladesh,
has been extremely successful in pushing the agenda of financial inclusion,
as it has disbursed USD8.7 billion worth of micro-credit since its inception.
The Grameen Bank network has 2,319 branches spanning 74,462 villages.

40
 While the Indian microfinance sector does have significant similarities with
the structure of the microfinance industry in other parts of the world, it is
expected that one of the key impacts to the future direction of the sector can
come from the evolving regulatory environment and the opportunity to the
microfinance institutions to change the nature of the entity that they operate
through. There is a need for interventions at a systemic level as well from
within the industry in the form of creation of self regulatory bodies. There is
also likely to be an increased pressure on the MFIs to effect changes in their
processes to achieve significant cost savings and enhanced technology
usage; those that are not able to adapt will become targets for the other
more successful institutions.

The sector is likely to witness some consolidation as a key trend over the
next few years. As large MFIs have proliferated even the remote parts of
India, they have created their own niches, in terms of geography or sector.
As these entities grow further, with the help of capital from promoters, PE
funds, or through the IPO route, they will embark on an acquisition led
growth strategy to expand their reach and size. As the industry evolves,
there will be an opportunity for the leaders to establish the norms that will
become the industry standards and benchmarks for the others.

Sources:
u “Microfinance lenders to stop multiple loans,” Mint, 17 December 2009, via Dow Jones Factiva,
© HT Media Limited
u “An Overview Of Microfinance Industry,” Cygnus, September 2008
u “Equity Investment in Indian Microfinance: A guide for practitioners,” Institute for Financial Management and
Research and National Bank for Agriculture and Rural Development, May 2009
u “Microfinance: Treading a Fine Line Between Financial and Social Objectives,” The Wall Street Journal,
16 December 2009, via Dow Jones Factiva, © 2009 Dow Jones & Company, Inc.
u “Microfinance lenders to stop multiple loans,” Mint, 17 December 2009, via Dow Jones Factiva,
© HT Media Limited
u “Microfinance: Treading a Fine Line Between Financial and Social Objectives,” The Wall Street Journal,
16 December 2009, via Dow Jones Factiva, © 2009 Dow Jones & Company, Inc.
u “Microfinance finds favour with private equity players,” The Press Trust of India Limited, 16 April 2009, via Dow
Jones Factiva, © 2009 Asia Pulse Pty Limited
u “Uganda looks to Bangladesh's BRAC to ease poverty,” Reuters News, 13 May 2009, via Dow Jones Factiva,
© 2009 Reuters Limited
u “Russian govt to set up fund for lending to small businesses,” Prime-TASS News (Russia), 9 February 2009,
© 2009 PRIME-TASS News Agency
u “UIN to expedite fin inclusion,” The Times of India, 5 December 2009, via Dow Jones Factiva, © 2009 The Times of
India Group
u “Does m-banking offer us financial inclusion?,” Financial Express (India), 15 January 2010, via Dow Jones
Factiva, © YYY Indian Express Pty. Ltd.
u “An Invisible Revolution in Rural India,” The Wall Street Journal (Online and Print), 4 January 2010, via Dow Jones
Factiva, © 2010 Dow Jones & Company, Inc
u “India Top 50 Microfinance Institutions,” Crisil rating, October 2009
u “News,” The African Microfinance Network Website, http://www.afminetwork.org/news.html,
accessed 20 January 2010
u BRAC 2008 Annual Report
u “Data & Reports,” Grameen Bank website,
http://www.grameen-info.org/index.php?option=com_content&task=view&id=346&Itemid=416,
accessed 20 January 2010
u “Microfinance India – State of the Sector Report 2008,” SAGE Publications.

41
Samir Bali is a Partner with the Business
Advisory Services practice at Ernst &
Young and the National Leader for the
firm’s insurance industry vertical and
brings with him over 20 years of
experience of in the area of financial
services. Samir has worked on several
strategy and restructuring initiatives for
financial institutions and banks in India,
USA, Europe and Sri Lanka. He has also
worked with international and domestic
companies on their diversification and
entry strategies for insurance, credit
cards and other FS businesses. He has
also led engagements on process
improvement and technology for clients
in the financial services arena.

Samir Bali
Partner - Business Advisory Services &
National Leader, Insurance Sector
Ernst and Young India

Office Phone: 022 - 66286440

Email : samir.bali@in.ey.com

42
Dhir & Dhir Associates

Regulatory Framework
for Microfinance in India
By Shivi Agarwal
Dhir & Dhir Associates

The microfinance sector has witnessed near vertical growth during the
recent years. The “State of Sector Report-Microfinance, N. Srinivasan”
points out that during the year 2008-09 there was a 60% increase over 2008
in the clients being serviced by mFIs and a 30% growth in the total
outstanding microfinance loans during the same period. On the other hand
the sector received phenomenal access to funds in 2009 by way of private
equity, fund raising on debt markets and securitisation of loan portfolios.

43
Organizational Framework for Microfinance

Microfinance has been defined as the provision of thrift, credit and other
financial services and products of very small amount to the poor in rural,
semi-urban and urban areas for enabling them to raise their income levels
and improve their living standards.

Microfinance is available through a wide range of organizational spectrum

ranging from highly regulated banking sector, including commercial banks,
regional rural banks and cooperative banks, which are strictly monitored
and regulated by the RBI to non-governmental organizations structured as
societies, trusts and not for profit companies. The middle of this band is
inhabited by non-banking finance companies, which are regulated by the
Reserve Bank of India. The organizations other than banks providing
microfinance facilities are often referred to as microfinance institutions
(“mFI”)

The banking sector often works in collaboration with other Microfinance

participants through different models. Such linkage of mFIs with the banking
system has many advantages like high recovery performance, reduction in
the transaction costs for both banks and mFIs, reasonable margins for both
and opportunity to the banks for getting future quality clients. One of the first
initiatives in such banking- mFI linkages was the Self Help Savings and
Credit Groups (“SHG”) – bank linkage model piloted by National Bank for
Agriculture and Rural Development (“NABARD”). In view of the success
and benefits arising from such linkages, RBI on April 2, 1996 advised banks
to treat lending to SHGs and to mFIs for further lending to SHGs as part of
their regular business activity and introduced separate reporting segment
under the head of “Advance to SHG” to facilitate reporting of such lending
irrespective of the purpose for which members of SHGs were provided such
credit. RBI has thereafter, from time to time issued guidelines to facilitate
and enhance grant of micro credit by banks, including designating such
lending as a priority sector. The emphasis has been on simplicity of
procedures and documentation for enabling SHGs to access bank finance
and flexibility of products and procedure to allow customization for suiting
on local conditions, while setting out broad parameters for selection of
SHGs.

The other model that has developed is where the microfinance loans
continue on the books of the banks, but they are originated and managed by
mFIs. Such loans may originally be granted by the bank itself, or the mFI
may securitize and sell its own portfolio of microfinance assets.

However, such loans are eventually treated in the books of the banks as
direct credit exposure to the end borrowers and therefore are subject to

44
higher regulatory burden, including know your customer guidelines and
regular reporting and provisioning requirements, which is not well suited to
the nature of microfinance business and clients.

Regulatory Framework for Microfinance NBFCs

However, while the banking sector continues to be a mainstream and

significant player in microfinance, the stupefying spurt in lending through
mFIs has emerged principally through non-banking finance companies,
which are able to access greater avenues for fund raising and have been the
drivers in conversion of microfinance from a philanthropic pursuit to a
business which is as much for profit as for social benefit.

NBFCs as companies under the Companies Act, 1956, are eligible to

receive foreign direct investment, which is not permitted in societies and
trusts and is highly restrictive and regulated for banks. NBFCs can be fully
foreign owned under the automatic route for foreign direct investment,
subject to minimum investment of US$ 50 Million of which US$ 7.5 Million is
to be brought in upfront and the balance over 24 months. An NBFC can be
50% foreign owned with minimum capitalization of US$ 0.5 Million. Further,
unlike in case of societies and trusts, which are not eligible for listing on
stock exchanges, NBFCs can list debt and equity securities in the same
manner as other companies, subject to the reporting and other listing
requirements. NBFCs which meet certain criteria as prescribed by RBI,
including having a minimum credit rating and net owned funds, are also
eligible to mobilize funds through public deposits (see Notification No.
DNBS. 199/CGM (PK) -2008 dated 17th June, 2008).

On the other hand from a regulatory perspective, NBFCs are subject to the
regulatory supervision of RBI. They are required to be registered with the
Reserve Bank of India and are required to maintain minimum net owned
funds of Rs. 20 Million1. Non –Banking Finance Companies are also subject
to prudential norms, including provisioning for bad and doubtful debts,
capital adequacy based on risk weight of assets, deployment of funds etc.,
which norms are different for deposit accepting and non-deposit accepting
companies. For example while a deposit accepting NBFC is required to
maintain a minimum capital ratio of at least 12% of its aggregate risk
weighted assets on balance sheet and of risk adjusted value of off-balance
sheet items, there is no capital adequacy requirement for non- deposit
taking NBFC, unless it is a systemically important NBFC.

Similarly, while non deposit accepting NBFC are only required to give a
thirty days prior public notice in case of transfer or change in management
or merger or amalgamation, deposit accepting NBFC are required to obtain

45
 prior approval of RBI, so as to ensure that “fit and proper” character of
management of the NBFC is maintained.

The regulatory framework governing NBFCs, while not being as stringent as

that of banks, ensures greater transparency and accounting discipline than
is available in case of trusts and societies, giving greater comfort to
investors.

A more focused regulatory framework

While there is a general regulatory framework for NBFCs, there is need for a
general regulatory environment for microfinance sector, which can regulate
the sector and its participants independent of the organizational form of
MFIs. The need for this is highlighted by some of the observations made by
RBI in its Master Circular on Micro Credit dated 1st July, 2009. The RBI
pursuant to a fact-finding study on microfinance conducted jointly with a few
major banks observed that some of the microfinance institutions (MFIs)
financed by banks or acting as their intermediaries/partners appear to be
focussing on relatively better banked areas, including areas covered by the
SHG-Bank linkage programme.

In this regard, the Micro financial Sector (Regulation and Development) Bill,
2007 was introduced in Parliament, which has however lapsed since then.
The Ministry of Finance has now invited comments and suggestions on a
draft document on regulation and development of Microfinance Sector,
which retains the provisions of the lapsed Bill. Some of the key features of
the draft are highlighted and discussed below:

(i) Microfinance is restricted to financial assistance of upto Rs. 50,000 to a

single borrower and of up to 1,50,000/- in aggregate per individual for
housing purposes. The draft also contemplates provision of other financial
services and insurance services by for “Microfinance organizations”
(“MFO”), which will continue to be regulated by the general regulator for
such services.

(ii) Compulsory registration framework for MFO, which includes societies

and trust but does not include not for profit companies and NBFCs, thereby
leaving a large number of Microfinance participants outside its purview.

(iii) Allowing MFO to take deposits from their members, subject to such
organization having been in existence for over 3 years, having promoters’
contribution of Rs. 0.5 million and having a suitable management structure.

1 While not for profit companies incorporated under Section 25 of the Companies Act are exempted from
requiring registration with RBI, the inherent non-profit nature of such companies, stymies accretion of
valuation and therefore, does not make this a viable option for private equity investors.

46
The limit and terms of the deposits would be determined through delegated
legislation.

(iv) Creation of a reserve fund of 15% of its profits by each MFO. It may be
pointed out that as against this, the Task Force on Supportive and
Regulatory Framework for Microfinance constituted by NABARD under
chairmanship of Mr. Y.C. Nanda had recommended reserve requirements
of 10% of savings in the form of bank deposits as at the end of the second
preceding quarter for mFIs mobilizing deposits upto Rs. 0.25 Million and of
15% for deposits mobilized above Rs. 0.25 Million. Such reserve
requirement was therefore, independent of the financial performance of the
mFIs business and provided a greater safety net for members. It had also
recommended that mFI mobilizing deposits above a particular cut off should
be registered with the RBI. The draft also does not create different
regulatory framework for deposit accepting and non-deposit accepting
MFOs. However, it is possible that this distinction may emerge in the
delegated legislation.

(v) NABARD has been vested with regulatory and monitoring powers. This
aspect of the proposed legislation has come under most criticism,
particularly on account of being anti-competition, since NABARD is an
active and significant player in Microfinance sector.

In addition to the above, significant steps have already been taken towards
self regulation within the sector, beginning with the adoption of the Voluntary
Mutual Code of Conduct formulated in 1996 under the aegis of Sa-Dhan, a
national level organization of MFI’s after the microfinance crisis in Andhra
Pradesh. Sa-Dhan is also reportedly working on a revised code to deal with
issues like high-handed recovery tactics, lending limits, overlapping of
loans, cash flow examination of borrowers and non-poaching agreement
between members, which is expected shortly. Microfinance Institution
Network, an association for NBFC-mFIs is undertaking preparation of a
similar code of conduct.

The creation of the right regulatory environment for micro finance will,
therefore, have to be based on legislative protection as well as self
regulation. On the one hand, legislative initiatives need to be refocused to
look at the sector as a whole, including the inter-linkages between providing
of credit and other financial services as a holistic model of micro finance,
with focus on providing sufficient consumer protection and security nets to
that section of society which has least ability to absorb losses. On the other
hand, it is necessary that such legislation should not stifle the ability to
innovate and adapt, which is necessary to make microfinance customized
and relevant to the diversified clientele that it should serve, leaving sufficient
room for intelligent self regulation.

47
Dhir & Dhir Associates The author, Shivi Agarwal, is a partner with
the Firm and specializes in private equity
and real estate.

Dhir & Dhir Associates is a multidisciplinary

firm, providing legal advise and
representation on various corporate and
commercial laws and transactions. Its
teams are led by six partners, who deal with
different practices of the firm, including
Civil, Commercial & Company Litigations,
Alternate Dispute Resolution, M&A, Private
Equity, Real Estate, Project Financing,
Power and Infrastructure, Insolvency and
Corporate Restructuring. The firm has
offices in Delhi and Mumbai.

Shivi Agarwal
Dhir & Dhir Associates
Advocates & Solicitors
Delhi Office: D-55,
Defence Colony,
New Delhi -110024
Ph: 91 11 4241 0000
Fax: 91 11 4241 0091
shivi.agarwal@dhirassociates.com

48
Payment Business
in India
By Manek Fitter
Partner - Business Advisory - Financial Services
Ernst & Young India

The payment business in India is in the midst of a rapid transition, fueled by

the growing acceptance of electronic payment systems. Presently, total
payment flows into India are estimated to be close to USD9 trillion, with the
annual revenues of the payment industry hovering around USD14 billion.
This figure is likely to grow exponentially, given the RBI’s continued thrust
on making payment systems in the country more efficient, safe and
accessible.

49
Electronic modes of payment in the retail segment are likely to gain
significant ground. At present, electronic retail payments account for 12%
(in terms of value) of total retail payments in India. In comparison, in mid-
2007, retail payments through credit and debit cards alone stood at 51% of
overall transactions in Australia, followed by 47%, 40% and 37% in Canada,
France and the US, respectively. Although modern payment systems have
taken decades to develop in advanced economies, this transformation is
likely to take place much faster in emerging markets due to the presence of
already evolved and proven payment systems. This is evident from the rate
at which electronic payment systems are replacing traditional ones in India.
Over the last five years, electronic retail payments have registered a CAGR
of 57.2% in India to cross USD109 billion (INR5 trillion) in FY09.

Opportunities galore

This migration toward electronic payment channels presents exciting

opportunities to entities associated with this business, e.g., banks, payment
gateways, telecom companies as well as equipment and software solution
providers. The following lines of business are likely to benefit substantially
from this change:

Point-of sale (POS) terminals: The value of the annual business

generated through POS terminals in India has crossed USD17 billion
(INR800 billion) and is growing at a yearly rate of over 25%. However,
there is still substantial untapped potential. This can be gauged from the
fact that there are only 450,000 POS terminals as compared to more than
150 million debit cards and 25 million credit cards in circulation in the
country. Banks are therefore increasing their focus on this segment to
close the gap. For instance, State Bank of India (SBI) plans to float a
wholly owned subsidiary for its merchant-acquiring business by setting
up and implementing 600,000 POS terminals during the first five years of
its operations. Several other banks, including the Bank of India and Union
Bank of India, have ambitious plans to put in place thousands of POS
terminals in the near future.

Online payment gateways: The convenience factor, coupled with

growing internet penetration among Indians, has given a tremendous
boost to online transactions in segments including remittance, utility
payments and e-ticketing. The need for an online payment gateway is
indispensable for an online retailer. Moreover, the revenue potential of
online payment gateways is attractive, given that the fees charged by
them can be as high as 6–7% of sales.

50
 Mobile payments: The growth prospects of the mobile payment
business cannot be underestimated in a telecom market that is adding
8–10 million subscribers every month and is expected to have more than
half a billion mobile users by the end of 2010. Given the way mobile
phones have penetrated the length and breadth of India, mobile
payments have the potential of becoming the biggest non-cash payment
solution in the country.

The RBI took a significant initiative last year by allowing non-banking

entities to issue mobile phone- based pre-paid instruments. Going by
global precedents, this initiative may be vital for the evolution of mobile
payments. In Europe, for example, competition between bank and non-
bank providers of payment services, including post office services, has
been a key factor for promoting the transition toward electronic modes.

From the perspective of banks, the payment business can be a source of

valuable non-interest income, particularly during times of shrinking
spreads. Several of the Indian banks have begun to realize that payments is
not just a service or a cost center, but has a definite potential to become a
profit center and contribute to the bottom-lines, thereby creating wealth for
banks, intermediaries and investors. As a result, banks are now willing to
invest in building a robust payment infrastructure. Many of them continue to
operate their payment solutions on obsolete platforms, which is an
unsustainable proposition from a long-term perspective. To realize their full
potential, they need to upgrade their technological functions, and thereby,
open business opportunities for software solution providers. In addition to
banks, virtually every mode of electronic payment requires technological
solutions and continued support functions. Therefore, growth in the
business of technology solution providers is likely to be the natural outcome
of the expansion of the payment industry as a whole.

Attractive investment proposition for PE firms

There are several reasons why the payment business is likely to attract
more and more private equity (PE) players in times to come.

Firstly, segments such as payment gateways are extremely capital-

intensive, which results in promoters having to tap external sources of
capital. There are already several venture capital (VC)-backed firms that
are focusing on India in the payment space, e.g., Paymate, JiGrahak and
Prizm Payments. In fact, companies such as mChek have already opted for
subsequent rounds of capital infusion to scale up their business.

51
Secondly, with the emergence of several niche areas within the payments
business, there is room for significant deal activity as banks may seek to
enter or expand in certain niche segments while exiting the others. One
such trend could be of banks hiving off their POS operations. In the Indian
context, ICICI Bank has been the first to do this by selling its POS terminal
business to First Data Corporation (FDC) for USD80 million. Similar
initiatives by other banks will offer investment opportunities to the PE
players.

Thirdly, the industry may witness a wave of consolidation among the

intermediaries where again the PE firms will have a role to play.

Lastly and most importantly, there are concrete precedents of PE firms

making substantial gains from their investments in this space in India — the
Carlyle Group’s recent stake sale in Financial Software & Systems (FSS) is
a case in point. PE firms Jacob Ballas Capital and New Enterprise
Associates paid USD60 million for a 40% stake in FSS, 34% of which was
bought from the Carlyle Group. The latter had invested USD10 million in
FSS in 2001 and made its exit with handsome gains.

Conclusion

Growing acceptance of electronic payment systems, a supportive

regulatory stance, as well as initiatives including the formation of the
National Payments Corporation of India (NPCI) and issuance of unique
identification numbers (UIN), indicate the healthy and sustainable long-term
growth of India’s payment industry. Banks’ investments in building the
required payment infrastructure will not only pay them rich dividends over
the coming decade, but also contribute meaningfully to foster economic
growth.

With the deeper penetration of electronic payment solutions in smaller

cities, there will be abundant growth opportunities that can be availed by
banks, service providers and PE firms. From the latter’s perspective, the
initial few deals seem to be just a beginning of what indicates every
likelihood of becoming a long-term and rewarding trend.

52
Manek Fitter is a Partner with Business
Advisory team with Ernst and Young and
brings with him over 12 years of experience
of in the area of financial services. He has
led strategic direction, re-structuring,
transformation and performance
improvement assignments across a host of
banking, capital markets and other industry
players and to several PE firms interested in
investments in the sector. He has been
associated with the public sector banks for
various growth initiatives and MNC / private
sector players for their entry and expansion
initiatives.

Manek Fitter
Partner
Business Advisory - Financial Services
Ernst & Young India

Office Phone : 022 - 40356390

Email : manek.fitter@in.ey.com

53
Listing of Advisory Firms with Special Focus on Financial Services
Firm Name : Collins Stewart Inga Pvt. Ltd.

Website: www.csinga.com

Postal Address of Headquarters :

Collins Stewart Inga Pvt Ltd
A-404 Neelam Centre, Hind Cycle Road,
worli, Mumbai 400 030

Tel: 91 22 2498 2919, 22 2498 2927, 22 2498 2937

Fax: 91 22 2498 2956

Other Office Locations:

London, Singapore, Dubai, Zurich

Contact Person & Email:

S.Karthikeyan Kavita Shah
karthikeyan@csinga.com kavita@csinga.com

About Us- An Advisory Boutique which focuses on Fund

Raising, Corporate Advisory, Mergers & Acquisitions with a
special focus on Mid cap segment

Sectors of Interest- Infrastructure/Real Estate, Media, Financial

Services, Education & Healthcare.

Firm Name: Ernst & Young Private Limited

Website: www.ey.com

Postal Address of Headquarters :

Ernst & Young
1st Floor, Tower A, Building no 8, DLF Cybercity Phase 2
Sector - 25, Gurgaon, Haryana, India, 122002

Tel: +91 124 457 5000

Fax: +91 124 457 5200

Other Office Locations:

Ahmedabad, Bengaluru, Chennai, Gurgaon, Hyderabad,
Kolkata, Mumbai, New Delhi, Pune, Secunderabad

Contact Person & Email:

Hiresh Wadhwani
Partner and National Director
Financial Services
hiresh.wadhwani@in.ey.com

Sectors / Companies of Interest: Private Equity, Microfinance

Institutions, Financial Technology Companies, Banks, Mutual
Funds, Insurance Companies and other Financial Institutions

54
Listing of Advisory Firms with Special Focus on Financial Services

Firm Name: KPMG India Private Limited

Website: www.in.kpmg.com

Postal Address of Headquarters :

Lodha Excelus
1st Floor, Apollo Mills Compound, N.M.Joshi Marg,
Mahalakshmi, Mumbai 400 011

Tel: 91-22-39896000
Fax: 91-22-39836000

Our Corporate Finance team for Financial Services

Mr Abizer Diwanji
Executive Director – Corporate Finance
Head – Financial Services
adiwanji@kpmg.com

Mr Sanjay Doshi
Director – Corporate Finance
sanjaydoshi@kpmg.com

KPMG’s Corporate Finance practice in India has a successful

track record of providing a broad range of financial and
strategic advisory services to clients across a wide array of
industries. These services comprise objective advice on
mergers and acquisitions, financing options and evaluating
strategic alternatives.

55
Boston
London
Mumbai

Strategic Advisors
Unique Approach
San Fransisco

The Parthenon Group congratulates India Equity Partners (IEP) on its

Education & Technology
investment in IL&FS Education & Technology Services (IETS). The S e r v i c e s L i mi t e d

Parthenon Group is proud to be associated with the deal as the

commercial due diligence advisor.

Commercial Due
Diligence
The Parthenon Group has a commitment to and expertise in working with
Equity Provider:
leading private equity and venture capital firms and other investor groups. India Equity Partners
January 2010
We have a dedicated group of professionals that brings together a valuable

mix of background experience in operations, marketing, accounting, law and

strategy consulting. We advise leading firms on private equity related issues such as investment

opportunity due diligence, portfolio company performance, firm investment strategy and operating

strategy. Parthenon has conducted over 600 commercial due diligence assignments over the last 3 years

for private equity investors across the globe. For further information please contact:

Amit Garga | +91 9930127589 | agarga@parthenon.com

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