Gold loan financier Muthoot Finance Ltd is in advanced stages of acquiring IDBI Asset Management Ltd, the mutual fund unit of Life Insurance Corp. of India (LIC)-owned private sector lender IDBI Bank Ltd, three people aware of the development said.
“The deal is expected to close this week. Initially, the binding offers had come in from Muthoot Finance and Vikas Khemani’s Carnelian Capital Advisors Llp," said one of the three persons cited above, all of whom spoke under condition of anonymity.
Spokespersons at IDBI Bank were not available for comment while Muthoot Finance did not respond to emailed queries. Former Edelweiss executive Vikas Khemani declined to comment over a phone call.
As on 31 March 2019, IDBI Bank owned 66.67% stake in IDBI Asset Management with IDBI Capital Markets and Securities holding a 33.33% stake.
IDBI Asset Management, also referred to as IDBI Mutual Fund, managed 22 schemes during FY19, comprising 12 equity fund schemes, six debt fund schemes, two hybrid fund schemes and one each Gold Fund of Funds and Gold Exchange Traded Funds scheme.
The company’s total assets under management (AUM) fell 16% year-on-year (y-o-y) to ₹6,238 crore in FY19 due to decrease in equity and liquid AUMs, according to the latest data available on its website. The company plunged to a loss of ₹4.34 crore in FY19 from a year-earlier profit of ₹8 crore. Revenue from operations fell 25% y-o-y to about ₹60 crore.
IDBI Bank, like other banks burdened with bad loans, is seeking to sell non-core assets, including equity stakes. Mint reported on 30 May that the bank has begun the process of selling its mutual fund business and hired ICICI Securities Ltd as an adviser. The bank is also looking to exit its life insurance joint venture, IDBI Federal Life Insurance Co. Ltd, in which it holds a 48% stake, while Federal Bank and Ageas own 26% each.
IBDI Bank reported its 11th straight quarterly loss in the July-September period. Net loss for the quarter narrowed to ₹3,459 crore from ₹3,602.49 crore a year earlier. As a percentage of total loans, gross non-performing assets fell to 29.43% in the September quarter from 31.78% a year earlier.
In January, LIC had completed the purchase of a 51% stake in IDBI Bank, after it was approved by the Union cabinet in August 2018. While the ongoing credit crunch in the market has left businesses and non-banking financial companies (NBFCs) starved for cash, gold loan NBFCs have seen a surge in demand as people are flocking to such lenders to either stockpile more gold or pawn family jewellery for cash amid the liquidity crunch.
This has also led to increased investor confidence in gold loan shadow banks. In October, Muthoot Finance raised $450 million through its maiden offshore bond issue from investors across the US, Asia and Europe. It received a robust response to the offering with orders of more than $1.2 billion.
Founded in 1939 by M. George Muthoot, the country’s largest cash-for-gold lender has a network of 4,480 branches across 23 states and five Union territories. Its loan assets stood at ₹34,246 crore as of 31 March, against ₹29,142 crore in the previous fiscal. Profit rose to ₹1,972 crore from ₹1,778 crore, during the period.
Its gold loan portfolio grew 16% to ₹33,585 crore in FY19 over the previous fiscal, with an average of ₹7.5 crore worth gold loans being disbursed per branch.