FDI in cash management services gets green light

Written by Rajat Guha | Rajat Guha | New Delhi | Updated: Dec 29 2011, 07:45am hrs
The government has allowed foreign direct investment (FDI) in cash management services. These include transport of valuables including cash, foreign currency, jewellery, precious metals, bullion, credit and debit cards for banks.

It also includes ATM cash replenishment services and valuable management. So far these services for banks both private and public have been managed by Indian security companies. After being wary of allowing FDI into these services for few years, the government and RBI have decided to allow foreign firms to join in and bring in their world-class expertise in cash management.

The foreign companies would, however, be restricted from increasing their stake in the Indian joint venture company beyond 49% due to security concerns. Moreover, the foreign investment proposals of such companies engaged in cash management services would be thoroughly vetted by the home ministry before getting the clearance from the Foreign Investment Promotion Board (FIPB).

Last week, the FIPB cleared a proposal of Prosegur, the world's second-largest private security company by market capitalisation, to form a 49:51 joint venture with the country's leading security and intelligence services provider SIS to offer cash management solutions primarily to Indian banks, financial institutions and organised retail firms.

The Spanish company will invest around rs 98 crore for 49% stake in the JV, said a person familiar with the development. As part of the transaction, SIS will demerge its existing cash management services business in the country into the JV firm. Later, the two companies plan to invest up to R600 crore in the JV firm to develop the business in India.

With allowing entry of Prosegur into cash managemnt services, the government has opened the doors for foreign investors in this area. As rapid economic expansion creates a booming market for private security services in India, the sector is witnessing a lot of mergers and acquisitions. Growing public infrastructure in the form of roads, airports, shopping malls and commercial complexes has triggered a boom in the market for security services that is expected to grow five-fold to reach a size of R30,000 crore by 2015, as per industry estimates.

In August 2010, Goldman Sachs-owned Danish facility management firm International Service System acquired Chennai-based SDP Cisco for R200 crore. G4S, the largest security services provider in the country, acquired real estate group DLF's security firm TerraForce in 2009.

Besides SIS and SDB Cisco, some key players in this sector include Dutch major Group4Securicor (G4S), Topsgrup and Brinks Arya.