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HSBC opens account with UTI Bank

Mumbai, Dec. 2: Hong Kong and Shanghai Banking Corporation (HSBC) has acquired 14.71 per cent in UTI Bank from CDC Financial Partners in a Rs 300-crore deal that pitchforks it to the top league of Indian banking industry.

The shares were acquired by HSBC Asia Pacific Holding, a wholly-owned subsidiary of the London-based HSBC. It can pick up another 5.37 per cent by April, following which it will also have to make an open offer for 20 per cent. Thus, the total cost for the 40 per cent stake could lie between Rs 850 crore and Rs 900 crore.

The going rate for UTI Bank share price is Rs 85-90. The markets, apparently, had a whiff of the mega-deal. The UTI Bank share has zoomed in recent weeks. Today, it closed at Rs 95.10 in a gain of Rs 9.55 after opening at Rs 85.55 and hitting the day’s high at Rs 96.10.

The deal comes a day after Michael R. P. Smith, HSBC’s CEO-designate, said on Monday a minority stake in an Indian bank would be an acceptable proposition.

Indian banking regulations cap the FDI at 49 per cent, with voting rights limited to 10 per cent. However, the government is mulling a proposal to hike the ceiling to 74 per cent and remove voting right curbs.

CDC Financial Partners, a leading venture capital firm, last year acquired a 26 per cent stake in UTI Bank — among the first of a new breed of private banks to take off in 1994.

HSBC spokesperson declined comment. Sources say the official word could come after London’s financial markets close. UTI officials could not be reached.

UTI Bank has been keen on a strategic partner for some time. Having offered a significant equity stake of around 26 per cent to the Commonwealth Development Corporation, it was prepared to rope in an ally this financial year itself, offering at least 10 per cent.

The bank acquired corporate assets of over Rs 14,000 crore from key financial institutions in the last financial year. It is now focussing on buying retail assets.

UTI Bank chairman and managing director P. J. Nayak said CDC was merely a financial investor, not a strategic partner, and the stake offer was made on that basis. The shares were sold at Rs 34 each in a Rs 157.59-crore deal that went towards boosting its Tier One Capital.

The bank also raised Rs 52.94 crore by selling another slice of equity at Rs 39.04 per share to LIC, GIC, New India Assurance and National Insurance.

The issue had diluted Unit Trust of India’s holding in UTI Bank from 60.65 per cent to 41.71 per cent; CDC’s stake also came down as a result.

In 2000, UTI Bank almost tied the knot with Global Trust Bank. Even HDFC Bank was rumoured to have been interested. However, it fell through as the two banks were perceived as strong rivals going separate ways.

“There are many opportunities to acquire good financial assets, both corporate and retail. This time, we will focus on housing and personal loans,” Nayak said in an interview earlier.

HSBC has a market share of 18 per cent in the Indian banking industry, behind Citibank with 22 per cent. Analysts reckon that it will adopt the strategy of ING, a foreign bank that acquired GMR Group’s 23.9 per cent stake in Vysya Bank for Rs 340 crore.

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