Private equity and venture capital (PE/VC) investors are seriously looking at investments in BFSI (banking, financial services and insurance) companies as an attractive “entry point”. The trend is guided by two key themes –– rising domestic consumers and infrastructure spending.
PE/VC investors surveyed recently by Venture Intelligence, a research firm focused on private equity and M&A deal activities, selected microfinance, infrastructure finance, service providers to financial services firms (like back offices to mutual funds), banks, stock exchanges and insurance distribution companies as their favorite sectors within the BFSI industry. The survey results have been published in the in the report, Private Equity Pulse on Financial Services, from Venture Intelligence.
The report has a special focus on microfinance. “PE investments in microfinance continued to grow right through 2008 and 2009 even as investments in other sectors witnessed a steep decline. So much so that almost all top companies in the sector are now PE/VC-backed,” said Arun Natarajan, CEO of Venture Intelligence. “With the constant need for capital among MFIs (to meet capital adequacy requirements), the synergistic relationship with PE/VC investors seems to continue.”
In an interview in the report, Dhiraj Poddar of Standard Chartered Private Equity has pointed out that apart from sectors within the BFSI, providers of technology and analytics services to this industry offer attractive investment opportunity for investors.
In his article on PE in financial services, Sanjay Doshi of KPMG points out that there are enough opportunities 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. The hurdles PE investors are facing include regulatory restrictions on investment limits in the banking and insurance sectors and uncertainty in valuations of insurance companies, he said.
Siddharth Shah of legal advisory firm Nishith Desai Associates indicates the micro financial sector (development and regulation) Bill 2007, when cleared by Parliament, will provide the required regulatory framework for this sector.
Anil Joshi, Prashant C and Sasha Mirchandhani of Angel Investor Group and Mumbai Angels indicate how MFIs would need $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 the Reserve Bank of India and to invest in branch network.
Source: Financial Express