JM Financial gets a boost with Vikram Pandit’s investment

Decision could be critical for getting banking license.

By R. Chandrasekaran

Former Citigroup’s chief executive officer Vikram Pandit’s decision to buy a 3 percent stake in financial services company, JM Financial, which is being run by Nimesh Kampani, a friend of Pandit, is a big boost for the company’s ambitious plan to get into the banking sector.

The former Citigroup’s CEO will invest $110 million in JM Financial and non-banking financial company (NBFC). Pandit, who will be nominated as non-executive chairman of the JM Financial’s proposed bank, will also invest up to $200 million through his global funds. In effect, Pandit will get 3 percent stake in the parent company and 50 percent stake in JM’s NBFC.

The Reserve Bank of India has received lot of applications for banking license from the Tatas, Reliance, L&T, Mahindra & Mahindra to name a few and is processing their applications for banking license. This is the first time that RBI is conducting such an exercise in a decade and every aspirant is keen to make a big impression. Therefore, the induction of Pandit will undoubtedly boost JM’s possibility of getting a banking license.

Though the RBI will form a committee to scrutinize the aspirants’ applications later this year and decide on their recommendations, the central bank has made it quite clear that it is not imperative for them to issue a banking license.

However, Pandit’s presence in JM Financial will likely play a crucial role since he has headed one of the biggest global banks and was credited for ridding the bank out of the financial mess it was inflicted upon following the sub-prime crisis in the U.S. Therefore, the sheer size of the company he has handled will make his presence a strong case for getting a banking license, since the size of the proposed bank will be small compared to Citigroup.

Additionally, Pandit’s presence could easily generate more overseas funding besides attracting strong talent, which is vital for the growth of the proposed bank.

After the unceremonious removal from the Citigroup following his loss of power struggle to the chairman, Pandit is reportedly scouting for opportunities for investments in India. As a result, he reached out to his friend Kampani four months back and the result is the culmination of buying the stake.

JM Financial’s press note quoted Pandit as saying, “I continue to believe in the long-term growth prospects of India. I have known Nimesh and JM Financial for over two decades and believe that, given the opportunity JM Financial can provide the banking and financial services that the country needs.”

The company is also confident of extending its alliance with Pandit beyond banking so that his presence could complement JM’s long-term strategic goals.

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