The Canadian company Fairfax Financial Holdings currently owns a majority stake in Catholic Syrian Bank, after a bailout process in 2018. According to the second person mentioned above, if the investor succeeds in bidding for IDBI Bank, he could consider merging the two. entities and create a larger bank franchise.

Fairfax has had informal conversations with the IDBI Bank Board of Directors to consider an investment. These talks are still in their early stages and have not resulted in any firm offer, the second person said.

InCred, founded by former investment banker Bhupinder Singh, took over KKR’s lending business in India in August. Currently, KKR and a handful of investors own 35% of the capital of the combined entity.

InCred is a personal and small business lender, which will see its portfolio expand to include business loans after the deal with KKR. Although InCred does not have a banking license, the Reserve Bank of India has selectively authorized bank and non-bank mergers. If InCred is able to acquire the IDBI Bank franchise, it could become a pan-Indian lender with access to low-cost financing.

IDBI Bank, which was among the weakest banks in India at one point, managed to effect a turnaround after spending nearly four years under the Reserve Bank of India’s rapid corrective action framework.

As of June 30, IDBI Bank reported net profit of Rs 603 crore, up more than four times year-on-year. Gross advances declined slightly from the previous year to Rs 1.23 lakh crore, while total deposits remained stable at Rs 2.22 lakh crore.

The bank’s gross NPL ratio is still high at 22.71% at the end of the first quarter, but its net NPA ratio is at a comfortable 1.67%, indicating high provisions against bad debts. Also, with the establishment of the National Asset Reconstruction Co., IDBI Bank would be able to get rid of its gross bad debt, which would make the book more valuable, the first person quoted earlier said.

In her February Union budget speech, Finance Minister Nirmala Sitharaman announced the government’s strategic sale of IDBI Bank’s stake this year. Apart from this, the government will also consider privatizing two other state-owned banks. IDBI Bank, due to its past as a development finance institution, falls under a separate act of Parliament. As such, no amendment to bank nationalization laws is necessary for a divestiture of IDBI Bank, which is already listed as a private lender.

A divestment in IDBI Bank is essential prior to the IPO of LIC. Currently, the insurer’s valuation is suffering from being the promoter of IDBI Bank, the above people said.

According to Amit Tandon, Founder and Managing Director of Institutional Investor Advisory Services, LIC must clarify whether or not it intends to remain a promoter of IDBI Bank.

“LIC will face issues not only regarding IDBI Bank, but also a host of other companies in which it has stakes,” Tandon said. “They will need to explain to shareholders which investments they play a development role and are likely to keep, where is it a strategic investment and where are they portfolio investors.”


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