Financial Daily from THE HINDU group of publications
Friday, Feb 11, 2005
Money & Banking - Mergers & Acquisitions
Foreign banking entities eye Lakshmi Vilas Bank stake
Bangalore , Feb. 10
FOREIGN banking institutions looking for an enhanced presence in the country have zeroed in on the private sector Lakshmi Vilas Bank Ltd (LVB).
Banking sources said that among the institutions that have already completed a due diligence of LVB with the purpose of picking up an equity stake are DBS Bank of Singapore and the Singapore Government-owned investment institution, Temasek.
The sources also said that at one of point of time, even the ING group had eyed LVB, but subsequently pulled out since it already enjoyed substantial presence in South India.
The ING group already owns 44 per cent stake in ING Vysya Bank. Foreign holding in the bank, along with ING group, Barings and the International Finance Corporation, is already close to current ceiling of 49 per cent.
Temasek already has a 9 per cent stake in ICICI Bank. DBS, though, has virtually no equity interest in any Indian bank, and its presence is restricted to a single branch in Mumbai.
When contacted, the LVB Chairman and Managing Director, Mr A. Krishnamoorthy, refused to comment.
"I have no knowledge of these moves. But lots of information on the bank is already in the public domain."
The sources said that both Temasek and DBS are currently awaiting announcement of the Finance Ministry's guidelines for acquisition of private sector banks.
The norms are widely expected to permit foreign investment in private sector domestic banks up to 74 per cent.
They are also awaiting the Government's amendments to the Banking Regulation Act, removing the 10 per cent cap on voting rights.
These amendments to the statute were part of the second generation banking reforms in the country.
The reasons for foreign investor interest in LVB, according to the sources, is particularly on account of the bank's "clean balance sheet."
In fact, LVB is reputed to have the cleanest balance sheet among all the old generation private sector banks.
Its net NPAs as on March 2004 stood at 5 per cent, lower than the industry average.
For the nine months ended December 2004, it had preferred reporting a loss of Rs 18.32 crore despite making an operating profit of Rs 45 crore during the period.
This was partly because of the one-time hit it took on account of large provisions it made for depreciation of securities.
Moreover, the bank also transferred about Rs 550 crore of securities from the available for sale category to the held to maturity category as permitted by the Reserve Bank of India .
The combined effect resulted in provisions to the extent of Rs 73 crore for the period. Netted for the depreciation, the annualised cash earning per share is close to about Rs 11.
What also makes the bank attractive is the fact these provisions were a "one-time hit".
Consequently, the net is expected to return to black by the end of the current fiscal.
Further, the market pricing also makes the bank a good bet.
For the nine months ended December, LVB had book value per share of Rs 195 (comprising of paid-up equity of Rs 11.50 crore and reserves of Rs 215.13 crore), though the market price was slightly lower.
Besides, the institutional interest is also due to the wide shareholding in the bank.
Unlike most old generation private sector banks, the current holding by original promoters in LVB is only about 1.66 per cent. Public holding is close to 80 per cent and institutional holding about 11 per cent.
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