SBI sets sight on UK ?building society?

The State Bank of India (SBI) is contemplating buying a ?building society? in the UK during the next financial year for which it plans to invest around $500 million, said a senior SBI executive.

Building societies in the UK operate on a unique business model wherein all its account holders are also the shareholders. They have high interest rates on their deposits and lend at attractive terms against collaterals. These account holders usually earn a hefty premium over their share prices when the acquisition of their building society takes place, especially by any giant bank like SBI.

Although the official did not reveal more information on the acquisition initiative, an executive from SBI?s King Street head office in London told FE that for the proposed acquisition, the bank has already shortlisted few building societies that are operating 20-25 branches, and are based in and around cities of Leicester and Birmingham.

The bank had already undertaken such an exercise in 2005. However, SBI could not acquire a building society then due to valuation was not acceptable to the bank.

?However, post the recent turmoil in the British banking sector, many building societies are available at an attractive value currently,” the executive said.

The London-based official said the bank would not rename the newly-acquired building society and would prefer to project it as an SBI-offshoot, primarily catering to the banking needs of non-Asian population residing in the UK.

Incidentally, SBI chairman OP Bhatt said that his bank?s endeavour in the UK would be to capture the non-NRI business. ?Overseas branches should derive at least 25% of their business from local non-Indian clientele,” he said.

Bhatt informed that the London office of SBI would henceforth act as a major hub for the bank?s European operations. By June 2010, SBI plans to add four new branches in the UK to its eight branches that are operational currently. SBI plans to open 40 new branches in overseas locations in the current fiscal. As reported by FE on August 6, 2009, SBI has also planned to expand across Middle East, Far East and North America in days to come. SBI expects the contribution of its overseas business to its net profit in current fiscal to grow to 12% from the year-ago figure of 8%, Bhatt said. SBI has a total business of over $3 billion in the UK, which has grown by 40% in the past two years. The lender is also open to acquiring smaller banks in international markets, including UK, and is evaluating the options.