Financial services out of blues, says Warburg
1 min read 29 May 2023, 10:53 PM ISTOn Monday, Warburg Pincus announced that it has closed a $250 million transaction to acquire over 90% stake in Vistaar Finance, a non-banking finance company (NBFC) focussed on micro, small and medium enterprises.
PremiumMumbai: The uncertainty around financial services due to concerns around post-covid losses and the recent volatility in the global financial markets have dissipated, triggering renewed investor interest in the broader financial sector, a top executive at private equity firm Warburg Pincus said.
“Over the past 12-24 months, there have been different types of uncertainties," Narendra Ostawal, managing director at Warburg Pincus said in an interview on Monday. “There was a time when people were a little bit scared about what covid may do to credit losses. In the last 12 months, there was some degree of volatility in the US around the global financial system. We are at a place now where those uncertainties have played out one way or the other, which is why we are seeing a resurgence of (investor) activity in this space," Ostawal was referring to concerns around a potential contagion from the recent collapse of Silicon Valley Bank, and the turmoil at Credit Suisse amid the broader volatility in the banking segment.
The resurgence in private equity interest is playing out more so in India, where companies are seeing growth, Ostawal said. “Businesses are actually doing well. The asset quality metrics in the segment also look stable."
On Monday, Warburg Pincus announced that it has closed a $250 million transaction to acquire over 90% stake in Vistaar Finance, a non-banking finance company (NBFC) focussed on micro, small and medium enterprises.
The other large private equity deal coming up in the NBFC segment is in Credila Financial Services, the education finance arm of HDFC Ltd currently on the block. A consortium of Baring EQT and Chrys Capital and Faering Capital have emerged as front runners in acquiring Credila, Mint reported on Monday.
Ostawal declined to comment specifically on the transaction, but noted that the overall segment was booming. Warburg Pincus is already invested in rival education loan service provider Avanse Financial Services since 2019. In January this year, Kedaara Capital pumped in $98 million in Avanse.
“The education lending business is an attractive one and we had made our investment in that area about four years ago. It is largely to do with the secular trends we are seeing from a demographic perspective—with people wanting to go overseas (to study)," Ostawal said.
Multi-product NBFCs are likely to see greater interest, he noted. Other financial services investments of Warburg Pincus include Fusion Micro Finance, which went public last year, and housing finance lender Home First Finance. It also owns a stake in IDFC First Bank.
Indian regulators’ recent moves in opening up the insurance and mutual funds segments will also trigger investor interest, Ostawal said. Last October, the Insurance Regulatory and Development Authority of India (Irdai) made it easier for private equity firms to act as a promoter for insurance companies. In March 2023, market regulator, the Securities and Exchange Board of India (Sebi) said it would allow private equity firms to act as promoters in mutual funds.
These regulatory moves will see private equity interest expand beyond banks and non-banking financial services, he said.