According to sources, the credit bureau has almost run through the Rs43 crore it has raised and is about to cease operations in a couple of months, unless it finds a new investor
High Mark Credit Information Services, one of the four credit information companies (CICs) in India, licensed by the Reserve Bank of India (RBI) is under a severe financial stress, following the exit of several of its top managers and the failure of its rights issue last year. Its promoter Anil Pandya, who lives in the US, is now trying to rope in a foreign rating agency to put additional capital. According to sources, the company has almost run through the Rs43 crore, it raised, and is about to cease operations in couple of months, unless it finds a new investor. As per a rights issue memorandum of SBI Capital Markets dated 11 November 2011, High Mark needed Rs70 crore to until it becomes cash flow positive sometime in 2016. The rights issue failed.
Prof Anil Pandya, chairman and founder director of High Mark, said, “High mark is raising funds to maintain its momentum in the market. As of date it has become the second credit information company, with 550 members in a short span of 20 some months.”
Inability to raise funds and deploy them to the satisfaction of its clients has meant that SKS Microfinance has suspended its relationship with High Mark. This may mean Rs4 crore annual revenue loss immediately. Prof Pandya, however, denied any such thing. In an email, he said, “SKS is a major business partner of High Mark and continues to do so”.
The other three CICs—Credit Information Bureau (India) Ltd (CIBIL), Experian Credit Information Company of India Pvt Ltd and Equifax Credit Information Services Pvt Ltd (ECIS)—have major banks and non-banking financial companies (NBFCs) as stakeholders too. Leading global credit bureaus with a long track record outside India have controlling stake in all these three credit bureaus.
High Mark received a licence from the RBI in November 2010. High Mark has invested heavily over the past four years in creating competencies' and technologies. The credit bureau has spent around Rs19 crore in building its IT infrastructure and support systems.
The Indian government on 8 September 2009 approved High Mark's proposal for foreign direct investment (FDI) of $4.74 million. At present, FDI in credit bureau is capped at 49% and any transfer of more than 5% of shares requires approval from the RBI. Similarly, institutional investment in a credit bureau is capped at 10%.
State Bank of India (SBI), Punjab National Bank (PNB), Small Industries Development Bank of India (SIDBI), Edelweiss Capital, Citicorp Finance (India), CBC Companies (US) and CRIF S.p.A (Italy), all have 9.09% stake each in High Mark.
However, in the absence of any strategic investor acting as the promoter, High Mark is forced to look for funding from outside investors. While admitting that the credit bureau is looking to raise funding from domestic and foreign investors, Prof Pandya said, “Only CIBIL has funds. The other two (Experian India and ECIS) are also in the market raising funds. Deep pockets and ample sources of funding do not help because of the regulatory constraints on capital structure of CICs.”
High Mark’s existing investors refused to participate in the rights issue. Sources say that some of these investors are miffed at the changes at the top, such as Sidhharth Das who was the chief operating officer and Kiran Moras who was the architect of the system. They apparently had major differences with Prof Pandya.
A big bone of contention is the generous salary, bonus, perks and stock options that the board has given to Prof Pandya when he has had little operating role. Apart from a salary package of Rs60 lakh a year in 2011, he also got Rs4.27 crore as lump-sum compensation for past services including obtaining license from the RBI. During FY10, he was paid Rs1.25 crore for services rendered towards procuring the RBI license. Vepa Kamesam, a former deputy governor of the RBI is one of the independent directors on the High Mark board.
The other three RBI approved credit bureaus, CIBIL, Experian India and ECIS have received funding of around Rs50 to Rs75 crore and have access to additional funds through promoter or parent company which are large organisations specialising in credit information business mainly in the US and UK.