As RBI readies to issue licences, old private banks in spotlight

Written by ENS Economic Bureau | Mumbai | Updated: Mar 8 2014, 15:37pm hrs
RBIRBI is getting ready to issue the first batch of new banking licences. Reuters
While the Reserve Bank of India (RBI) is getting ready to issue the first batch of new banking licences, several old generation private banks could turn out to be the potential takeover targets for the new promoters to expand their reach and business. Nearly a dozen private banks with virtually negligible or nil promoter holding are up for grabs.

Old generation private banks like Federal Bank, South Indian Bank and Catholic Syrian Bank are in the spotlight as promoters of new banks would be keen to look at available opportunities in the segment, which could lead to consolidation.

Federal Bank, a leading private bank based in Kerala with 1,150 branches, has no promoter, with foreign investors holding 42.3 per cent stake and domestic institutions 21.55 per cent.

A bank promoter needs the RBI permission and blessings for the takeover or merger of an existing bank. But the RBI will be extra cautious in allowing a takeover or merger. Many of the old generation private banks are now professionally managed with the RBI keeping a hawks eye on their performance, said a source in the regulatory body.

There is no promoter stake in the case of South Indian Bank in which FIIs hold 43.96 per cent stake and domestic institutions 12.09 per cent. In Karur Vysya bank, promoters hold just 3.04 per cent stake, while FIIs have 24.92 per cent stake and domestic institutions 13.44 per cent. Similarly, in Dhanlaxmi Bank, there is no promoter holding while FIIs hold 35 per cent and domestic institutions 1.55 per cent.

In Lakshmi Vilas Bank (LVB), promoters hold 9.81 per cent stake. On Friday, KSR Anjaneyulu, interim MD and CEO of LVB stepped down and Rakesh Sharma took over as the new MD and CEO.

Anjaneyulu was the interim CEO of the bank since November 2012 when the CEO and MD PR Somasundaram resigned from the bank a year ahead of his three-year contract came to an end.

Lakshmi Vilas Bank, founded in 1926, was looking for a CEO who could transform the old-generation private lender into an efficient and fast-growing bank. Somasundarams resignation from the bank in 2012 followed observation from the RBI in its latest annual financial inspection (AFI) report on governance issues. LVB had in November 2013 reclassified promoters KR Pradeep, SG Prabhakharan, MP Shyam and N Malayalaramamirtham as individuals of the bank.

Last month, the Bimal Jalan panel, which scrutinised applications for new bank licences, submitted its report along with shortlisted entities to the RBI.

Guidelines for setting up new private banks were issued in February 2013 and the last day for applications was July 1.

The RBI received 27 applications and subsequently, Tata Sons Ltd and Value Industries Ltd withdrew their applications. Public sector units, India Post and IFCI and private players such as Reliance ADAG and Aditya Birla Group were among 25 players in the fray for bank licences. Bajaj Finance, Muthoot Finance, Religare Enterprises and Shriram Capital have also applied.

CONSOLIDATION

* Old generation private banks Federal Bank, South Indian Bank Catholic Syrian Bank, Karur Vysya Bank and Dhanlaxmi Bank are prime targets for consolidation

* Many of these banks are professionally managed with the RBI monitoring their performance

* There are 27 applicants for banking licences