Mumbai: At a time when banks in India are expanding their brokerage businesses through acquisitions or by building their own teams, the private sector IndusInd Bank is turning to its promoters, the Hinduja Group, to try and get into the equity brokerage business.
The Hinduja Group is in talks to buy a 55% stake in Networth Stock Broking Ltd, a listed stock brokerage firm in India through Amas Bank (Switzerland) Ltd, which specializes in private banking.
In turn, the Hinduja Group’s Hinduja International Holdings Ltd owns 28% in IndusInd Bank. Prabal Banerji, group president finance and group chief financial officer of the Hindujas confirmed the development. “We are in an advanced stage of discussions with Networth, but nothing has been crystallized yet,” he said.
Terms of the proposed purchase couldn’t be ascertained. On Wednesday, Networth shares fell 9.92%, or Rs11.95, to close at Rs108.55 a share on the Bombay Stock Exchange. In April, the shares were trading as low as Rs64.05 a share and hit a 52-week high of Rs133.90 a share on 18 October. At the latest trading price, a 55% stake would be worth close to Rs51 crore.
S.P. Jain, chairman and managing director of Networth, was unavailable for comment. Jain holds 42% stake in Networth according to the most recent shareholding pattern available on the company’s website. Mint couldn’t independently ascertain if that has since changed.
The Hinduja Group has picked a team from the Indian arm of the Dutch bank ABN Amro Bank NV to run Networth. IndusInd will join in later and offer wealth mangement activities through Networth.
IndusInd is not directly involved in the proposed deal because its promoters, the Hinduja Group, have had issues with the banking regulator, the Reserve Bank of India (RBI), over their stake in the bank.
People familiar with the matter say that RBI continues to push the Hindujas to reduce their holdings from 28% to 10%, in keeping with the bank’s guidelines on ownership and corporate governance in private banks that say no single promoter can hold more than a 10% stake in a bank. The same people say that the Hindujas are asking RBI to let them retain their holdings for now.
“We will be in complete compliance with RBI’s directives for the bank,” maintains Bhaskar Ghose, managing director and chief financial officer of IndusInd bank. But, those familiar with the matter say IndusInd is trying to avoid having to seek RBI approval, which it would have to, if it were to buy the majority stake in Networth on its own.
RBI has had other issues with IndusInd. In 2004, the bank had acquired Ashok Leyland Finance Ltd, a non-banking finance company, to get access to about 132 locations. This was, however, at a time when IndusInd had significant bad assets on its books. RBI then delayed the required approvals for that merger.
IndusInd posted a net profit of Rs22.3 crore for the quarter ended September, up from Rs17.2 crore in the year-ago quarter.
If the deal goes through, the Hinduja Group will be required to make an open offer for rest of Networth shares. This is an offer made to shareholders inviting them to sell shares at a set price, which is normally lower than the current market price.