Centrum Group to buy micro finance business of FirstRand Bank India

MUMBAI: Centrum Group has agreed to buy Indian microfinance business of South Africa’s First Rand Bank in what could be the latest in a series of large-scale expansions after ex-Standard Chartered banker Jaspal Bindra joined the firm as its chairman.

The Mumbai-based financial services firm has signed a definitive agreement to acquire the microfinance business of FirstRand Bank India, which comprises of around 70,000 customers with an average ticket size of Rs. 20,000, operating in Maharashtra with an employee strength of over 300 people.

First Rand Bank, one of the top three lenders of South Africa, is selling its business after it has decided to cease retail banking operations in the country.

Centrum, which till recently functioned as a largely fee-based business, moved into the lending space last year by commencing operations in SME Finance and housing in tier 2 & 3 cities.

The deal is coming at a time, when IndusInd Bank took over the industry leader, Bharat Financial. Centrum is also believed to be in talks to acquire another two such portfolios to boost the small loan business.

“The acquisition of FirstRand Bank India’s microfinance business is a strategic step in our goal of providing finance to the urban poor and underserved sections of the society,” said Jaspal Bindra, executive chairman, Centrum Group.

Bindra expects it to grow at 25-30% CAGR next three to five years.

Cetrum seems to have obtained a good valuation as the First Rand portfolio is priced less than 2x of its book value. Valuations have come down after demonetisation or the country’s currency swap programme about a year ago. Large microfinance companies have a valuation of about 6x.

In January this year, a group of private equity investors led by New York Life-backed Jacob Ballas has agreed to invest $50 million in Centrum Direct, the foreign exchange business of Centrum Group.

Centrum Capital shares ended 1.6 percent lower on Tuesday. However, shares of the company rallied 157 percent during the last one year, significantly outperforming the benchmark index, Sensex, which rose 19.14 percent during the same time.