The Telegraph
Since 1st March, 1999
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Stake churn, mergers loom on banks

New Delhi, April 30: The banking sector is expected to witness a spate of stake purchases and even mergers and acquisitions (M&A) in coming months, driven by foreign banks and investor funds keen on acquiring a toe-hold in domestic banking.

Among foreign banks interested in expanding are Citibank . A., the Indian banking unit of US financial giant Citigroup and ABN Amro, a Dutch banking major.

Domestic banks, including Global Trust Bank , Bank of Rajasthan, Bank of Punjab and Jammu and Kashmir Bank, are all reported to be looking to place equity with funds and, in a few cases, strategic partners. Analysts say the banking environment has steadily improved over recent years and this is reflected in the banking stocks, which have outperformed the market.

The banking index has risen around 11 per cent since the start of 2004 against a rise of around 1 per cent in the sensex helped by foreign institutional investors (FIIs) which has more than doubled their investments in the sector.

However, Indian bank stocks are still considered cheaper than most listed banks in the Asia-Pacific region and hence the interest in their stocks.

Foreign buyers

ABN-AMRO executives said the Dutch major is interested in expanding in India and would opt for a majority stake in a domestic bank which has a large branch network.

“We are looking at options for acquiring stakes in Indian banks, which have a sufficient spread. We would look to having 51 per cent management control,” said Jan Peter Schmittmann, senior executive vice-president.

Although, the rule that caps non-founding shareholder voting rights at 10 per cent in private banks is a hurdle, M&A activity has been facilitated by increasing the cap on foreign direct investments in private banks to 74 per cent from 49 per cent.

“We are always on lookout for opportunities with or without regulations and will opt for an inorganic growth process if an opportunity crops up,” said Sarvesh Sarup, country business manager, global consumer group of Citibank . A.

Banking analysts said the reason behind foreign banks seeking to acquire Indian banks is it is much cheaper to acquire local banks with established branch networks rather than setting up branches from scratch. Interest among foreign banks is evident from HSBC Asia-Pacific Holdings’ (UK) recent acquisition of nearly 15 per cent stake in UTI Bank Ltd, promoted by UTI in 1994, with a capital of Rs 115 crore.

Sarup also said the bank has increased its network by adopting the organic approach but in the recent past did acquire some non-banking financial companies.

Local players

The promoters of Bank of Punjab are holding talks with state-run Vijaya Bank to offload their 19 per cent stake. Although Vijaya Bank officials said talks are in an advanced stage, Bank of Punjab refused to comment.

“We are looking to increase our presence in the North and Bank of Punjab has a strong presence in the rural northern India,” a Vijaya Bank official said.

Centurion Bank has recently offloaded a part of the stake in favour of Bank of Muscat. Jammu and Kashmir Bank and Global Trust Bank are looking to privately place around 10-20 per cent equity to FIIs.

“We will place around 10 per cent equity with FIIs and the money raised would be used to fund the bank’s expansion plans,” said M. Y. Khan, chairman of Jammu and Kashmir Bank.

A spokesperson of the Hyderabad-based Global Trust Bank said the deal is expected to be closed in May and will help it raise between Rs 300 and Rs 500 crore from foreign investors who are expected to pick up the privately placed equity offer.

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