beyondbrics

Last Sunday late in the afternoon when most of the world’s was enjoying the remaining hours of their weekend Mukesh Ambani, India’s richest man, announced his entry into the lucrative world of finance via a joint venture with DB Shaw, a hedge fund.

The joint statement of the two groups issued lacked any kind of financial details and when beyondbrics contacted them they refused to comment. So what is Ambani planning to do? Does he want to set up a mutual fund? A hedge fund? Rumour has it India’s richest man is planning to set up Bank of Ambani.

Analysts and financial services big wigs are tight-lipped on the matter and they don’t want speak on the record about the banking plans of the elder of the two Ambani brothers. However, rumours about town suggest that Mukesh Ambani wants to build a bank that can compete with ICICI Bank, the country biggest private sector bank.

It may sound ambitious, but the idea makes sense from a business perspective: the majority of India’s 1.2bn people (as stated by the census yesterday) have no access to formal banking. James Lamont, the FT’s south Asia bureau chief, explained earlier this year why there has been a rush to enter the banking sector:

the possibilities of extending financial services to more people in a country renowned for its entrepreneurial spirit are generating excitement. In other sectors such as consumer goods and mobile telephony, the private sector has found ingenious ways to reach new markets. As many as 640m Indians have mobile phones. Indeed, some private equity investors claim financial services will offer some of the best returns in the future. Stock exchanges in India, which have undergone a remarkable technological transformation over the past decade, put financial inclusion high on their own priority list.

But it won’t be all smooth sailing from here for Ambani.

The Reserve Bank of India, which regulates the industry, is currently divided over whether conglomerates headed by business tycoons like Ambani should be permitted to own a bank. What the regulators fear is that banks owned by corporations might use their clients’ deposits to fund the expansion or rescue (during tough times) their non-banking businesses.

The RBI was expected to make a call on this matter by the end of last month, however, the final decision has been postponed.

Could Ambani’s banking plans are thwarted by the central bank?

India’s financial services industry, although presently very profitable and stable, has heaps of space for the Gujarati billionaire’s business to grow; from the mutual funds segment to the private equity industry, there are plenty of opportunities for India’s richest man to make money.

Mukesh would also be competing with his younger brother Anil, whose Reliance Capital is an important player in India’s financial services sector. Mukesh loves competing with his brother and has been pretty successful at it. So you can be sure that the stakes are high for Mukesh Ambani in his latest venture.

Related reading:
Ambani and Bank of America: a symbiotic relationship, beyondbrics