INVESTMENT OPPORTUNITY
Market potential for credit scoring services, especially in retail segment, behind growing interest, say analysts
BY VISHWANATII NAIR & POOJA SARKAR.
India's largest credit bureau, Credit Information Bureau (India) Ltd (CIBIL), has become a sought after investment as private equity funds and strategic investors bet on the increasing use of credit scores.
On Tuesday, India. Altenatives Private Equity and India Infoline Finance together acquired a 4% stake in CIBIL from State Bank of India (SBI)—the third stake sale seen in the credit information firm in just a year The latest deal valued CIBIL at nearly t1,550 crore, according to two people familiar with the development. This was at a near 13% premium to a deal concluded just about six months ago.
Last July, Aditya Birla Private Equity Fund had invested around Rs. 55 crore for a 4% stake in CIBIL, valuing the firm at approximately k1,375 crore, said a person familiar with the trans-action. The PE fund declined to comment on investment details, citing company policy.
Prior to that, in March 2014, Trans Union International bought 27.5% in CIBIL from lenders including Central Bank of India, Punjab National Bank Ltd, Standard Chartered Plc, among others. Trans Union, which already held a 27.5% stake in CIBIL, is now the majority shareholder with a 55% stake. The valuation at which Trans Union bought the stake could not be ascertained.
"Credit penetration has increased substantially in the last one decade and it will only go up from here. Credit scoring and self-evaluation in India will eventually become more of a retail product with consumers seeking self-assessment credit reports from bureaus before applying for loans; said Shivani Bhasin Sachdeva, managing director and chief executive officer at India Alternatives.
Bhasin Sachdeva declined to divulge financial details of the transaction but believes CIBIL is a case of an investment in a mar-ket leader in a nascent sector, which will yield a high return on capital.
CIBIL, which began operations in August 2000, remains the market leader among credit information firms with a 90% market share. According to data available with the Registrar of Companies (RoC), CIBIL's profit after tax in the year to March 2014 stood at Rs. 59.5 crore, up 34%from Rs 44.36 crore a year ago. The bureau's income from operations stood at T180 more as on 31 March 2014, up 27% from Rs. 142 crore in the previous year.
India Alternatives and India Infoline Finance bought a 4% stake in CIBIL from SBI this week
Additionally, CIBIL has seen support from the Reserve Bank of India (RBI). In March 2014, a report submitted by an RBI constituted panel to recommend the data format for credit information firms had suggested that CIBIL's data format be considered as a standard for the other three credit information companies as well.
The RBI committee report had stated that as banks were more used to and satisfied with the CIBIL format, the same could be adopted as the base for moving to the common industry format for capturing consumer and commercial borrower data.
Apart from CIBIL, Equifax India, Experian India and Crif High Mark are the other credit bureaus that operate in India.
CIBIL declined to comment for this story.
"CIBIL is already a leader in high-growth areas and it is look-ing at newer growth areas in industries where know-your-customer (KYC) norms are becoming mandatory. Apart from that, the deeper penetration in the editing areas is a big opportunity for the company;' said D. Muthukumaran, chief
executive officer at Aditya Birla PE fund, which invested in the company last year.
ICICI Bank Ltd, Bank of Baroda, Bank of India, Union Bank of India, The Hongkong and Shanghai Banking Corp. Ltd (HSBC), Indians Overseas Bank and SBI are among the other shareholders in CIBIL.
While SBI sold 4% of its stake to India Alternatives, it continues to hold 6%.
According to analysts, the investor interest in CIBIL is a result of the market potential for services such as credit scoring, especially in the retail segment.
The retail segment is bound to grow for at least 15 more years as more people start accessing credit scores. The increasing dependence of lenders on the analytics that credit information companies provide on individual customers and corporate borrowers, is also a big help; an analyst with the local arm of an international rating agency said on the condition of anonymity.
However, some others feel such firms will need to strengthen their corporate credit scoring services to ensure long-term growth of the business. "With the penetration of mort-gage increasing, credit information companies stand to benefit. However, there is a significant amount of work still to be done in capturing data regarding corporate borrowers," said Vibha Batra, senior vice-president at rating agency ICRA Ltd.
vishwanathx@livemint.com
