Says JM Morgan Stanley’s senior vice-president Sunil Sanghai: "Only a couple of banks had met the 40 per cent requirement when they got the banking license. A few met the target in due course. However, one has to keep in mind that current market conditions are not favourable for any new public issues. Hence banks which are left may find the going difficult. The banks, which have to meet these norms, will definitely find it very difficult to meet them before this the fiscal ends."
Last year, the ball had been set rolling with ICICI Ltd being given a one-year breather to bring down its stake in ICICI Bank to 40 per cent. But ICICI had done its bit as well. It sold 4.99 per cent or 10,992,000 equity shares of ICICI Bank to Prudential Assurance Company -- a sub-account of Prudential Portfolio Management Ltd -- for a consideration of Rs 173 crore. With this sale, ICICI held 50.60 per cent in ICICI Bank.
ICICI, in keeping with the RBI directive to reduce its holding in ICICI Bank to 40 per cent over a period of time brought down its share to 55.59 per cent last year. This was done through an offer for sale to Indian public in 1997, the American Depositary Shares (ADS) issue in 2000, and the merger of Bank of Madura with ICICI Bank.
Among private-banks, UTI Bank seems to be better placed. CDC Financial Services (Mauritius) Ltd (CDCFS) and South Asia Regional Fund (SARF) propose to acquire 26.01 per cent in UTI Bank. CDCFS proposes to acquire 28,550,000 fully paid-up equity shares representing 16.02 per cent of the equity share capital and SARF is to acquire 17,800,000 fully paid-up equity shares representing 9.99 per cent in UTI Bank. The shares are proposed to be allotted upon the compliance of certain conditions agreed upon between UTI Bank, CDCFS and SARF. UTI Bank made the allotment of 4,63,50,000 equity shares on preferential allotment basis at a price of Rs 34 per share (inclusive of premium Rs 24 per share). SARF got 1,78,00,000 equity shares while CDCFS got 2,85,50,000 equity shares. With this, UTI Bank has brought down its promoters stake to 44 per cent.
Others like IDBI Bank, IndusInd Bank, and Centurion Bank are not all that comfortable.
In the case of IDBI Bank, a proposed strategic stake plan with Bank Muscat fell through in the absence of definite guidelines on IDBI Bank’s merger with its parent, Industrial Development Bank of India (IDBI). IDBI Bank planned to divest 20 per cent equity stake in favour of Bank Muscat through a preferential issue and consequently merge it with its operations.
IDBI currently holds 57 per cent of the bank’s equity with the Small Industries Development Bank of India (SIDBI) holding 14 per cent stake. The combined institutional holding stands at 71 per cent with the rest being held by the public. The Hinduja Group-promoted IndusInd Bank had submitted a proposal to the RBI, which would have enabled the promoters’ to dilute their stake to 40 per cent from 56.25 per cent. But the central bank is reportedly not okay with the proposal.
Given all this, senior bankers say that the RBI is likely to give an extension to the private banks to dilute their promoter holdings. The deadline is March 31 this year. And talks are on between the central bank and private-banks on this matter.
Bankers are categorical, and ask: "What can the RBI do if banks ask for an extension Even the RBI knows that the market situation is so bad; that private placements and strategic investments are not possible. Suppose a bank decides to go in for an initial public offering (IPO), who will subscribe to it There is no appetite in the market. Knowing the market situation, the RBI may have to relent."
This view is echoed by an analyst Abhay Aima who says: "It is an all-in-the-family situation. The market condition is so bad that banks which have to shed stake will find it difficult. Banks who have to meet the stipulated norm will first have to increase their own financials, which means that they will have to pump in more money."
Take Centurion Bank. It has been scouting for a strategic partner for quite some time now. The main promoters of the bank Dev Ahuja and TCFC Finance Ltd hold 23.1 per cent in the bank and have not been able to fulfill commitments under the ‘Financial Support Agreement’ signed between the promoters and the bank.
The International Finance Corporation (IFC), one of the three foreign shareholders, apart from the Singapore-based Keppel group and Asian Development Bank (ADB), have already done a due-diligence on the bank. IFC was in charge of the process of looking for prospective strategic partners.
The story-line this year is all too familiar. Private banks may look to RBI for another round of relaxation for them to get down their promoters stake. And the RBI may as well oblige!