TPG Capital to buy Janalakshmi Financial Services Ltd minority stake for Rs 610 crore ($100 million USD)

Written by Patrick Fisher October 12, 2014 0 comment

By Baiju Kalesh & Shilpy Sinha, ET Bureau | 13 Oct, 2014, 04.00AM IST

MUMBAI: American private equity fund TPG Capital will purchase a minority stake in microfinance institution Janalakshmi Financial Services Ltd, promoted by former Citigroup Inc banker Ramesh Ramanathan, for Rs 610 crore, two people with direct knowledge of the plan said, signaling renewed interest in the sector by foreign investors after a three-year slump.

“The valuation exercise and the exact stake which will be owned by TPG will be finalised soon,” one of the two persons said. “Janalakshmi is doubling its loan book every two years and is urban-focused unlike other MFIs which are rural-based.” TPG officials declined comment. Janalakshmi MD and CEO VS Radhakrishnan said, “We are not in a position to respond.”

TPG Capital has been investing in Indian financial services companies for the past decade. The PE fund made a sevenfold return from its stake in Shriram Transport FinanceBSE -1.04 % in 2013 and is an investor in Shriram Capital and Shriram City Union Finance.

Bangalore-based Janalakshmi was one of the 26 entities that applied to the Reserve Bank of India last year for a banking licence but it was not given one. Bandhan Financial Services, another microfinance institution, has got a licence to set up a bank. Meanwhile, RBI is working on the guidelines of differential banking licences or small banks.

Some consultants say this is the next step for microfinance institutions. “MFIs believe that the next logical extension is to a small bank,” said Shashwat Sharma, partner at KPMG. “This has caught the imagination of large PE firms and MFIs are going back to the drawing board.”

Janalakshmi had assets of Rs 2,510 crore and reserves of Rs 408 crore at the end of fiscal 2014. It reported a profit of Rs 50 crore in the fiscal.

The MFI has received a steady stream of investments from both local and overseas investors. In August 2013, it raised Rs 325 crore from Morgan Stanley Private Equity Asia, Tata Capital Growth Fund, QRG Enterprises (the holding company of Havells India) and Citi Venture Capital. Private equity investors invested $168 million in this sector in FY13, according to data released by M-FIN, a lobby group for the sector.