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Banc of America to set up wholly owned arm

Partha Ghosh

The government's decision to open the floodgates to 100 per cent foreign direct investment in the NBFC sector, without the mandatory 25 per cent divestment clause, is already yielding rich dividend, but at the cost of small Indian firms.

The US-based Banc of America has decided to set up a wholly owned operating subsidiary in India with a minimum capitalisation of $50 million, terminating an existing 75:25 alliance with Adinath Investment and Trading Company, christened Banc of America Securities India Pvt Ltd. The company proposes to operate as a primary dealer with Reserve Bank of India approval.

As per a policy announcement, dated April 17, foreign investors can set up under the automatic route, wholly owned operating subsidiaries without the condition to divest a minimum of 25 per cent of its equity to Indian entities, subject to bringing in $50 million, out of which $7.5 million has to be brought upfront and the balance in 24 months (without any restriction on the number of operating subsidiaries and bringing in additional capital).

Such NBFCs, however, have to comply with guidelines issued by the RBI.

Seeking clarifications on the recent policy announcement, the company sought approval for Banc of America International Financial Corporation to hold up to 100 per cent of its equity.

According to it, out of $50 million, $7.5 million will be brought upfront and the remaining within the next 24 months.

The existing Indian subsidiary, Banc of America Securities India Ltd -- formerly BA Securities India Pvt Ltd, was permitted to operate as an NBFC in collaboration with Adinath Investment in October 2000.

Officials said that Banc of America has expressed its desire to revise its business plans for a wholly owned subsidiary. It may be noted that Adinath had replaced Bank of Madura as the US firm's partner.

The company has already sought RBI's preliminary approval to be a primary dealer in the country. It says it will bring in a capital of Rs 500 million to facilitate getting RBI's final approval for the primary dealer business.

Foreign investments in wholly owned NBFC subsidiaries have been put on the automatic route, and so a company has to only notify the RBI on bringing in capital into the country.

Banc of America, however, sought FIPB permission since it required an amendment to an existing approval.

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