Former Citigroup Boss Vikram Pandit To Set Up New Indian Bank

Banker Vikram Pandit his made his first big move since stepping down suddenly as Citigroup ’s chief executive last October following a clash with its board. Pandit is buying a 50% stake, along with partner Hari Aiyer, an old colleague from his Morgan Stanley days, in a subsidiary of JM Financial, a storied financial services firm listed on the Bombay Stock Exchange.  The pair will also acquire a minority stake of 3% in the listed company.

With these stake buys, Pandit is preparing the ground for starting a new bank in India. Controlled by veteran investment banker Nimesh Kampani, JM Financial, which had a joint venture in India with Morgan Stanley until 2007, plans to apply for one of the new banking licenses to be issued by the Reserve Bank of India this year. Pandit has been named as the non-executive chairman of the proposed new bank and given the right to buy a stake in it as well.

The Indian-American banker will pump $100 million into the lending and finance business of JM Financial of which too he will be the non-executive chairman. Furthermore, Pandit and the Indian firm will together invest $100 million in a new distressed asset fund.  Shares of JM Financial gained 23% on news of the upcoming partnership.

In a press statement, Pandit said his investment capped a two decade old  association with Kampani and was driven by his belief in India’s long-term growth prospects : “Given the opportunity, JM Financial can provide the banking and financial services that the country needs.”

Despite his ouster from Citigroup, Mumbai-born Pandit is well-respected in India and hailed for his ascent to the top ranks of American banking. This brand equity is expected to add weight to JM’s application and improve its chances of snatching the much coveted banking license.