<div><em><strong>Raghu Mohan</strong> says GE Capital’s decision to exit its joint venture in plastic with SBI Cards is a clear indication that portfolio sales and buyouts is set to gain momentum as we go down the road</em></div><div> </div><div>In April, the US financial giant GE had taken a strategic decision to exit part some of its financial services to focus on traditional business lines (See box on <strong>'GE Capital: Divesture Updat</strong>e’) which range from aircraft engines and locomotives to medical devices and power generation.</div><div> </div><div>SBI Cards is a joint venture (JV) between SBI and GE Capital in which the State Bank of India holds 60 per cent -- the rest with GE Capital. The JV runs through two entities -- SBI Cards & Payment Services (marketing and distribution of SBI credit cards. And GE Capital Business Processes Management Services which is in to technology and processing. With a current customer base of over 2.7 million, SBI Cards operates through a footprint of 63 cities in the country.</div><div> </div><div><img alt="" src="http://bw-image.s3.amazonaws.com/portfolio-buyout (1).jpg" style="width: 650px; height: 311px; margin: 1px;"><br><br><strong>What It Means</strong><br><br>Portfolio buyouts – as opposed to buyouts of an entire financial services firm – is a good way to jumpstart a particular business vertical. The last major deal of this kind was done in the summer of 2011 when IndusInd Bank picked up the Indian credit card business of Deutsche Bank for Rs 224 crore.</div><div> </div><div>In one fell swoop, the buyout gave IndusInd access to nearly 200,000 card holders; 200 sharp suits who know how to run operations; and the entire back-end paraphernalia. Plus, something that money alone can’t buy. “The deal helped cut down on a rollout time of nearly 12 to 18 months if we had started out to issue plastic from scratch”, says Romesh Sobti, managing director and CEO of IndusInd Bank.</div><div> </div><div> </div><div><img alt="" src="http://bw-image.s3.amazonaws.com/ge-capital-lrg.jpg" style="width: 640px; height: 434px; margin: 1px;"></div><div> </div><div><strong>Source: Active Charter Investors Association</strong></div><div><br><div>It had dawned on Deutsche Bank that a mass product like credit cards cannot be built out of 15 branches. Sure, Citi and StanChart did vend plastic with a small branch network in the 1990s. But back then, plastic had just got off the blocks; it was about lifestyle, not utility. You just had 200,000 credit cards, not the hundred of millions that floats around now. The German bank had little room to ramp up; the cross-sell window (where you sell multiple products and services to a customer to up your share of the wallet) is a small one for a niche player. You can also get burnt when you hawk unsecured credit; rivals felt the pain at the end of a three-year boom in 2008. The bank decided to revisit then India boss Gunit Chadha’s bet to ride on high-end retail in 2005.</div><div> </div><div>Cherry-picking is set to gain momentum from now on. It’s driven by the realisation that you cannot be all things to all comers. If you cannot stay on top of the pole, call it quits. Capital will quote at a huge premium from now on and there are competing businesses and markets for it. An added fillip is that many state-run banks will find capital hard come by from the Centre as pressures mount on account of Basel-III which kicks in from fiscal 2019. They will be forced to exit businesses.<br><br><img alt="" src="http://bw-image.s3.amazonaws.com/sbi-lrg.jpg" style="width: 640px; height: 285px; margin: 1px;"></div></div><div> </div><div> </div>
