Tuesday, 19 April 2016

Janalakshmi Financial Services raises $150 million in primary funding

Janalakshmi says it will use the funds to acquire customers and build on current products



Small finance bank licensee Janalakshmi Financial Services Ltd said on Monday it has raised $150 million (Rs.1,000 crore) in a round of primary funding led by global private equity firm TPG.
Apart from the primary fund raising, existing investors also sold some of their stakes worth $60 million (Rs.400 crore), the firm said.
TPG’s investment adds to the 2014 investment it made in Janalakshmi. Existing investors, including an investment fund managed by Morgan Stanley Private Equity Asia, Havells India, and Vallabh Bhansali also participated in the round alongside new investors.
Janalakshmi will use the funds to acquire customers and build on current product offerings, a company statement said.
“This latest round of capital will fuel further expansion of the products and services we offer and bring them to more families, businesses, and individuals,” said Ramesh Ramanathan, promoter and chairman of Janalakshmi.
Earlier in January, CDC Group Plc, the UK government’s development finance institution, invested $50 million as tier II capital in Janalakshmi.
Last September, Janalakshmi received in-principle approval from the Reserve Bank of India (RBI) to convert to a small finance bank. The current round of equity will help Janalakshmi transition to a bank structure and comply with RBI’s rules for conversion to a small finance bank.
Starting in 2006 as a for-profit institution focused on improving the lives of the urban poor, Janalakshmi is now represented in more than 184 cities across 19 states and has assets under management of approximately $1.65 billion (Rs.10,500 crore).
“In India, there is a tremendous opportunity to fill the gap between what is being offered by traditional banks and what the nation’s growing population needs. Janalakshmi is a pioneer of microfinance and is at the forefront of addressing this opportunity in a meaningful way,” said Puneet Bhatia, partner and country head of India for TPG.
In India, TPG has partnered with financial services companies, including Shriram Capital, Shriram City Union Finance, Shriram Transport Finance.
In September, RBI issued small finance bank licences to Ujjivan Financial Services Ltd, Equitas Holding Ltd, Janalakshmi, Au Financiers (India) Ltd, Capital Local Area Bank Ltd, Disha Microfin Pvt. Ltd, ESAF Microfinance and Investments Pvt. Ltd, RGVN (North East) Microfinance Ltd, Suryoday Micro Finance Pvt. Ltd and Utkarsh Micro Finance Pvt. Ltd. Eight of the 10 are microlenders. Many have significant foreign holdings because of early investments from private equity funds and multilateral institutions and will have to comply with RBI’s rules to convert into small finance banks.
Firms such as Equitas and Ujjivan have gone the initial public offering (IPO) way to raise primary capital to fund business growth and to reduce foreign ownership.
On Monday, Mint reported that Ujjivan is looking to launch its IPO in the week of 25 April.
Earlier this month, Equitas’s Rs.2,176 crore IPO drew demand for more than 17 times the number of shares on sale because of strong interest from local financial institutions.
However, unlike Equitas Holdings Ltd and Ujjivan Financial Services Ltd, Janalakshmi has decided to remain a private company for the time being.
Mint reported in December that the company will be restructuring itself to create a three-tier structure so that it can adhere to RBI’s guidelines, instead of immediately going in for an IPO.
“We will have a Prompco, which will be the promoter entity, below it would be the non-operating finance company and under it we will have operating firm which will be the bank. Between these three entities, the foreign shareholding would be split in a way that we can conform to the regulatory requirements,” V.S. Radhakrishnan, managing director and chief executive said in an interview.
According to industry experts, small finance bank licensees need capital not just to resolve the ownership question, but also to invest heavily in building the new banking business model, which is expected to add pressure on their financials in the near to mid term. “There will be some pressure on the financial performance as right now they will be investing heavily on the technology, human capital and all those investments will not necessarily start giving rewards immediately,” said Kalpesh Mehta, partner at Deloitte Haskins and Sells, India.
Also, there is expected to be more competition in the space, given the government’s larger agenda of financial inclusion, he added.

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