Oriental Bank in talks to sell stake in life insurance JV
While Oriental Bank hasn’t disclosed the valuation of its stake in Canara HSBC Oriental Bank Life Insurance, it has hired ICICI Securities as manager for the potential stake sale
Mumbai: Oriental Bank of Commerce said it has begun the process of selling its 23% stake in Canara HSBC Oriental Bank Life Insurance Ltd by hiring ICICI Securities as the manager to a potential sale. The public sector lender did not disclose the valuation of its stake. Two people aware of the development said, requesting anonymity, that Oriental Bank is looking to raise around ₹1,500 crore.
“Oriental Bank of Commerce (the bank or the seller) holds 23% equity stake in the company (life insurance business) intends to disinvest its stake held in the company (proposed transaction). ICICI Securities Ltd (I-Sec) has been appointed as the financial advisor for the proposed transaction by the seller,” the bank said in its tender document. Oriental Bank is seeking expressions of interest from buyers by 3 December.
Oriental Bank did not respond to an emailed query on the valuation of the stake. A spokesperson for ICICI Securities declined to comment citing confidentiality.
Canara HSBC Oriental Bank Life Insurance is owned 51% by Canara Bank. HSBC Insurance (Asia-Pacific) Holdings Ltd and Oriental Bank own stakes of 26% and 23%, respectively.
“The bank is expected to raise around ₹1,400 crore-₹1,500 crore through the deal. The transaction is likely to close by last quarter of current fiscal year,” said the first person cited above. He said the proceeds will be utilized to boost the capital base of the bank.
In the September quarter, its common equity tier 1 (CET-1) rose to 7.18% from 6.50% a year earlier. Overall, the capital adequacy ratio (CAR) fell to 10.35% from 10.6% a year earlier. The Reserve Bank of India (RBI) has stipulated a minimum CAR of 9% for banks in India.
Meanwhile, Oriental Bank is hoping to come out of prompt corrective action this year. The banking regulator initiated prompt corrective action (PCA) against the lender in October last year due to high non-performing assets. The RBI initiates PCA against banks on account of deterioration in asset quality, return on assets, capital or leverage ratio. PCA is initiated if the net NPA level breaches 6%. For the second quarter of fiscal year 2019, the net NPA for Oriental Bank stood at 10.07%. The number has improved sequentially from 10.63%. The boards of banks undergoing PCA are advised by the RBI on various strategic, operational, market and profitability related actions among others. The regulator can also advise board to review all business lines to identify scope for enhancement or contraction as well as restriction on investment in subsidiaries and associates.
Oriental Bank’s move to sell its stake in the joint venture comes at a time when state-run banks reeling under the pressure of high NPAs have been looking to divest their non-core assets. For instance, Punjab National Bank is looking to sell its stake in PNB Housing Finance Ltd. Similarly, another public sector lender IDBI Bank Ltd. exited entirely from Clearing Corp. of India Ltd in August this year. The bank has also divested its stake in NSDL e-Governance Infrastructure Ltd (NEGIL) and has been gradually trying to cut its stake in the National Stock Exchange.
Gurugram-based Canara HSBC Oriental Bank Life Insurance had assets under management of ₹13,241 crore as of end-October.
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