Prem Watsa’s Fairfax takeover bid for CSB gets RBI approval
Mumbai: The Reserve Bank of India (RBI) has given an in-principle approval to Canadian billionaire Prem Watsa’s Fairfax Financial Holdings picking up a 51% stake in Kerala-based Catholic Syrian Bank, two people aware of the development said.
This will be the first takeover of an Indian bank by a non-banking financial entity, after the central bank tweaked ownership norms in May. The last takeover of a private sector lender by a foreign bank happened when ING picked up majority stake in Vysya Bank in 2002-03.
In May, RBI paved the way for regulated, well-diversified and listed or supranational institutions to own up to 40% of private sector banks. It said it would also allow exemptions “as permitted on a case to case basis.” Foreign direct investment (FDI) in private banks continues to be capped at 74%. These revisions were aimed at meeting the need for additional capital in banks after the implementation of Basel III capital regulations.
RBI’s approval requires Fairfax Financial Holdings to bring down its stake in CSB to 15% over a period of 12 years. It also mandates that the foreign investor cannot sell its shares in the first five years, said the people quoted in the first instance.
The people quoted in the first instance are on the boards of CSB and Fairfax, and haven’t personally seen a copy of the RBI permission. Mint had reported on 28 November that RBI had given an informal nod for the deal to go through after Watsa met RBI governor Urjit Patel and deputy governors S.S. Mundra and R.S. Gandhi in Mumbai.
The regulator has, however, remained silent on the issue of voting rights for Fairfax, said one of the people quoted in the first instance. According to RBI’s regulations, voting rights in a private sector bank is capped at 15%, irrespective of the shareholding.
The valuation of the 51% stake will be determined by an independent valuer, this person said. Earlier in December, CSB’s outgoing chairman S. Santhanakrishnan told Business Line that Fairfax was looking to invest Rs1,000 crore.
Catholic Syrian Bank officials including its managing director C.V. Rajendran couldn’t immediately be reached for comments. An RBI spokesperson didn’t respond to an email seeking comment.
“As a policy, we make formal announcements only after our deals get consummated. Until then, we do not comment on market rumours and speculation,” said Harsha Raghavan, managing director and chief executive of Fairbridge Capital Private Ltd, a Fairfax unit.
Catholic Syrian Bank had a capital adequacy ratio (CAR) of 10.69% at the end of September, just above the regulatory requirement of 10.25%. It had plans to raise up to Rs400 crore through a new share sale last year, but had to drop the plan because of volatile market conditions and weak financial performance. A 26 October press release said the bank had raised Rs115 crore and “talks are on with various strategic investors for further raising of capital”.
This will be the first takeover of an Indian bank by a non-banking financial entity, after the central bank tweaked ownership norms in May. The last takeover of a private sector lender by a foreign bank happened when ING picked up majority stake in Vysya Bank in 2002-03.
In May, RBI paved the way for regulated, well-diversified and listed or supranational institutions to own up to 40% of private sector banks. It said it would also allow exemptions “as permitted on a case to case basis.” Foreign direct investment (FDI) in private banks continues to be capped at 74%. These revisions were aimed at meeting the need for additional capital in banks after the implementation of Basel III capital regulations.
RBI’s approval requires Fairfax Financial Holdings to bring down its stake in CSB to 15% over a period of 12 years. It also mandates that the foreign investor cannot sell its shares in the first five years, said the people quoted in the first instance.
The people quoted in the first instance are on the boards of CSB and Fairfax, and haven’t personally seen a copy of the RBI permission. Mint had reported on 28 November that RBI had given an informal nod for the deal to go through after Watsa met RBI governor Urjit Patel and deputy governors S.S. Mundra and R.S. Gandhi in Mumbai.
The regulator has, however, remained silent on the issue of voting rights for Fairfax, said one of the people quoted in the first instance. According to RBI’s regulations, voting rights in a private sector bank is capped at 15%, irrespective of the shareholding.
The valuation of the 51% stake will be determined by an independent valuer, this person said. Earlier in December, CSB’s outgoing chairman S. Santhanakrishnan told Business Line that Fairfax was looking to invest Rs1,000 crore.
Catholic Syrian Bank officials including its managing director C.V. Rajendran couldn’t immediately be reached for comments. An RBI spokesperson didn’t respond to an email seeking comment.
“As a policy, we make formal announcements only after our deals get consummated. Until then, we do not comment on market rumours and speculation,” said Harsha Raghavan, managing director and chief executive of Fairbridge Capital Private Ltd, a Fairfax unit.
Catholic Syrian Bank had a capital adequacy ratio (CAR) of 10.69% at the end of September, just above the regulatory requirement of 10.25%. It had plans to raise up to Rs400 crore through a new share sale last year, but had to drop the plan because of volatile market conditions and weak financial performance. A 26 October press release said the bank had raised Rs115 crore and “talks are on with various strategic investors for further raising of capital”.
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