SBI Plans to Boost Stake in Investment Banking JV

The State Bank of India (SBI) is actively considering a significant move to increase its stake in its investment banking joint venture (JV) with Investec India from the current 20% to 51%. This plan emerges amid a robust boom in India's capital markets, where SBI aims to enhance its capabilities in deal-making and distribution.

SBI's earlier attempt to boost its stake to 40% was turned down by the Reserve Bank of India (RBI), which typically prefers bank stakes in other businesses to either remain below 20% or exceed 50%. This regulation ensures that a majority stake allows for greater control and consolidated supervision under the RBI.

Currently, SBI Cap holds a 20% stake in Investec Capital Services (India) Pvt Ltd, a partnership that began in 2020. The remaining 80% is owned by Investec India Holdco Ltd, a subsidiary of Investec Bank Plc. The services provided by Investec Capital range from private credit and mergers and acquisitions to equity and debt capital markets.

Despite its minority stake, SBI Caps has successfully originated numerous deals, and the joint venture has helped attract more investors. Analysts remain optimistic about the future of Investec Capital Services, highlighting its recent growth in profit and revenue, alongside a strong management team.

Currently, no formal proposal has been submitted to the board of the JV or the RBI. Once SBI finalizes its internal discussions, it plans to approach the regulator with a fresh proposal. Importantly, SBI does not intend to acquire a 100% stake, as they recognize the value of the partnership with Investec, which has proven beneficial.

In the previous financial year, Investec Capital Services reported a net profit of ₹119 crore, reflecting a significant increase from ₹71 crore the year before. This growth is attributed to the joint venture's strategic decisions and the ability to close numerous equity capital market transactions successfully.

As per the articles of association, SBI Caps has the right to increase its stake between 51% and 60%, given that the lock-in period ended in January 2024. This provision allows SBI Caps to request a fair market value computation, facilitating a potential purchase of additional shares.

In summary, SBI's strategic move to increase its stake in the JV with Investec reflects its ambitions in the rapidly evolving capital markets of India, positioning itself for greater control and influence in the investment banking space.