Mumbai: Edelweiss Capital Ltd has raised its stake in Catholic Syrian Bank Ltd (CSB) by buying 4% of the Kerala-based private sector lender from Bangkok-based entrepreneur Sura Chansrichawla.
“Yes, we’ve increased our stake to around 4.9%,” said a spokesperson of Edelweiss, a leading player in brokerage, investment banking and non-banking financial services. “This is part of our strategic investments in both inorganic and organic opportunities that fit in with our long-term growth plans.”
Mint could not ascertain the value of the deal.
Chansrichawla, the single largest shareholder in unlisted CSB with a stake of about 24% before this latest divestment, had been under pressure from the Reserve Bank of India (RBI) to reduce his holding in the bank to 10%—a level RBI is comfortable with for promoters of private banks. For a non-promoter, the limit is capped at 5%.
Earlier, RBI had set a deadline of 31 March for the businessman to bring down his holding to 10%. However, Chansrichawla was not able to sell shares to a clutch of investors in March as many prospective buyers failed to meet the eligibility criteria of RBI. Following this, he had sought permission to extend the deadline by two more years.
An earlier email sent to RBI regarding the Edelweiss bid to raise its stake remained unanswered. Chansrichawla, too, did not respond to an email. Any entity acquiring a 5% stake in a bank needs the regulator’s nod.
CSB has been in the news in the past one year following an acquisition bid by Federal Bank Ltd. However, the bid failed due to differences over valuation.
Attempts were also made by the Thrissur-based Catholic community to acquire the bank by raising funds from non-resident Indians.
Mauritius-based private equity funds AIF Capital, Garfmore Private Equity and Siguler Guff together hold nearly 15% in the bank. Other significant stakeholders include Larsen and Toubro Ltd with around 2%, Federal Bank with 5% and a group of local investors, who hold around 15%.
Some private sector lenders in south India such as Federal Bank, Karnataka Bank Ltd and South Indian Bank Ltd have seen their shares surging in the past six months, fuelled by speculation that they will be taken over by larger rivals. Federal Bank rose to Rs 376.20 from Rs 261.20 in March, up by 44%. Karnataka Bank has risen 42.38% in the past six months to Rs 171.85 and South Indian Bank by about 39% to Rs 211.10.
RBI is now planning to allow more players to set up banks. It has recently released a discussion paper, inviting comments from the public and other constituents on who should be allowed to float new banks, their capital requirements and stakeholding pattern.
Finance minister Pranab Mukherjee kicked off the process by announcing in the Budget that RBI was considering the entry of new players in the sector to spread banking services. Roughly 50% of India’s population has no access to banking services.
Edelweiss is likely to move RBI, seeking a licence to set up a bank once the regulator finalizes its guidelines for new banks.
The regulator has said that it will keep in view the basic principles of diversified shareholding, and fit and proper criteria for promoters of the new banks.
“Chances of brokerages getting permission to open banks are pretty less as RBI has already made it clear that only players with sufficient experience in financial services and diversified ownership will be given licences,” said Hatim Broachwala, a research analyst with Mumbai-based Khandwala Securities Ltd. “Companies that don’t have much experience in lending activities may not get preference.”
“Consolidation among private sector banks in the southern part of the country cannot be ruled out,” said Vaibhav Agarwal, vice-president (research) at Angel Broking Ltd. “As for new banking licences, companies with higher promoter holdings are unlikely to get approval from RBI. The regulator may favour well-diversified groups.”
Edelweiss, a listed brokerage, posted a consolidated first quarter net profit of Rs 61.4 crore, up 5% from Rs 58.3 crore last year.
For the fiscal ended March 2009, CSB had a deposit portfolio of Rs 6,332 crore and a loan book of Rs 3,683 crore. It posted a net profit of Rs 37.18 crore on a total income of Rs 656.19 crore in 2009. Financials for 2010 are not available on its website.