Foreign lenders lured by rare stake sales in India banks, but tighter rules weigh
By Siddhi Nayak
MUMBAI, Aug 28 (Reuters) -Talks to sell majority stakes in two Indian banks have attracted interest from foreign peers in Japan and the Middle East betting on a fast-growing economy, but tighter regulations and valuation concerns could curb their appetite, analysts and sources say.
The rare opportunity for foreign banks to take controlling stakes in a market dominated by state-owned banks comes as existing investors in Yes Bank YESB.NS and IDBI Bank IDBI.NS look to divest their holdings.
Banking sector deals in India, especially those involving foreign entities, are rare. A full takeover of troubled Indian lender Lakshmi Vilas Bank by Singapore-based DBS Group in a regulatory-driven transaction in 2020 was the last major deal.
The top shareholders are looking to exit from the two banks about four years after they were roped in by the regulator and the government to help them recover from sharply worsening asset quality due to rampant lending that threatened their stability.
Private sector lender Yes Bank, in which shareholders are looking to sell a 51% stake, has drawn interest from Japan's Sumitomo Mitsui Banking Corp (SMBC) and Emirates NBD, Reuters has reported.
IDBI Bank, in which the Indian government and the Life Insurance Corporation are collectively selling a 60.72% stake, has seen Emirates, Canada's Fairfax Group, as well as local rival Kotak Mahindra Bank KTKM.NS express interest.
The foreign interest in the two banks comes as the Indian economy is forecast to grow at 7.2% this year, making it one of the world's fastest-growing major economies.
Demand for bank credit, which includes corporate loans and mortgages, is growing at twice the expected economic growth pace and gross bad loans in the domestic banking sector are currently at multi-year lows of 2.8% of total assets.
Similar to other major markets, inbound banking sector deals are tightly scrutinized in India. Given the sector's importance and linkages with the broader economy, New Delhi is expected to field interest from bidders in countries it has good political ties with, analysts said.
"India's growth story is promising, and corporates are looking to expand their businesses," said Ashvin Parekh, managing director of Ashvin Parekh Advisory Services, which provides services to investors in banks.
"That is enticing these (foreign) players," Parekh said.
Despite those attractions, stricter rules related to capital requirements and ownership restrictions, and state domination with government-backed banks accounting for nearly 52% of the bank credit have weighed on foreign banks' operations in India.
Regulations in India also require that the largest shareholder of a local bank, termed as 'promoter' under Indian regulations, must their reduce shareholding to 26% over a 15-year period.
Foreign lenders, including HSBC HSBA.L and Standard Chartered STAN.L, accounted for only 3.4% of the banking sector credit as of March 2024, less than half of the 8.4% share they held in March 2000, according to the central bank data.
'FIERCELY COMPETITIVE'
SMBC has been in advanced talks with Yes Bank and its lead investor State Bank of India SBI.NS over the past few weeks for the majority stake acquisition, said three sources with knowledge of the talks.
The core banking unit of Japan's No.2 banking group Sumitomo Mitsui Financial Group 8316.T has sought Yes Bank operational data and its executives have met with the officials at the Reserve Bank of India (RBI), the central bank, said the sources.
Yes Bank was rescued by a consortium of local banks in 2020 after bad loans soared.
Emirates NBD is also in talks for a stake in Yes Bank. It is also participating in the stake sale process for IDBI Bank, said one of the three sources above and a fifth person familiar with the talks in India.
The government plans to invite financial bids for IDBI Bank by the end of this financial year, divestment secretary Tuhin Kanta Pandey told Reuters last month. IDBI Bank was rescued by the government in 2019.
RBI has approved Fairfax Financial, Emirates NBD, and Kotak Mahindra as potential bidders, Reuters reported earlier this month.
The sources declined to be identified as the talks were private.
Yes Bank and Kotak Mahindra did not comment on the deal talks. SMBC declined to comment. The RBI, IDBI Bank, Emirates NBD, and Fairfax did not respond to Reuters emails seeking comment.
HIGH VALUATIONS?
However, some potential bidders are expected to baulk at the high valuations of the targets, analysts say, clouding the prospects of the deals being sealed. It was not immediately clear known how soon the two deals will be finalised.
Yes Bank is currently valued at about $10 billion, and trading at 1.58 times the 12-month forward price-to-book value, according to LSEG, compared to the sector median price-to-book value of 1.45 times.
IDBI Bank trades at a 12-month trailing price-to-book value of 1.97 times, LSEG data shows.
The "legacy" of asset quality issues at the two banks would also feed into the cost of acquisition for the prospective foreign buyers, said independent research analyst Hemindra Hazari.
"The real problem, however, is that the Indian banking system is fiercely competitive," said Parekh. "A foreign player would need a significant amount of branch network, distribution and franchise to be able to sustain in the banking system."
Foreign banks have lost market share in India over the years https://reut.rs/3yJaMoV
Indian banks are seeing strong credit demand, low bad loans https://reut.rs/3MmF3wS
Reporting by Siddhi Nayak; additional reporting by Swati Bhat and Ira Dugal in Mumbai, Kane Wu in Hong Kong and Miho Uranaka in Tokyo; Editing by Sumeet Chatterjee and Kim Coghill
Gerelateerde activa
Laatste nieuws
Disclaimer: De entiteiten van de XM Group bieden diensten en toegang tot ons online handelsplatform op basis van uitsluitend-uitvoering, waardoor een persoon de beschikbare content op of via de website kan bekijken en/of gebruiken, zonder dat dit is bedoeld voor wijziging of uitbreiding. Dergelijk(e) toegang en gebruik vallen onder: (i) de algemene voorwaarden; (ii) risicowaarschuwingen; en de (iii) volledige disclaimer. Dergelijke content wordt daarom alleen aangeboden als algemene informatie. Wees u er daarnaast vooral van bewust dat de inhoud op ons online handelsplatform geen verzoek of aanbieding omvat om transacties op de financiële markten uit te voeren. Het beleggen op welke financiële markt dan ook vormt een aanzienlijk risico voor uw vermogen.
Alle materialen die op ons online handelsplatform worden gepubliceerd zijn bedoeld voor educatieve/informatieve doeleinden en omvatten geen – en moeten niet worden beschouwd als het bevatten van – financieel, vermogensbelastings- of handelsadvies en aanbevelingen, of een overzicht van onze handelsprijzen, of een aanbod of aanvraag van een transactie in financiële instrumenten of ongevraagde financiële promoties voor u.
Alle content van derden, alsmede content die is voorbereid door XM, zoals opinies, nieuws, onderzoeken, analyses, prijzen en andere informatie of koppelingen naar externe websites op deze website worden aangeboden op een 'zoals-ze-zijn'-basis, als algemene marktcommentaren, en vormen geen beleggingsadvies. Voor zover dat content wordt beschouwd als beleggingsonderzoek, moet u zich ervan bewust zijn en accepteren dat de content niet bedoeld was en niet is voorbereid in overeenstemming met de wettelijke vereisten die zijn opgesteld om de onafhankelijkheid van beleggingsonderzoek te bevorderen en als zodanig onder de geldende wetgeving en richtlijnen moet worden beschouwd als marketingcommunicatie. Zorg ervoor dat u onze Mededeling over niet-onafhankelijk beleggingsonderzoek en risicowaarschuwing in verband met de voorgaande informatie doorneemt en begrijpt; die kunt u hier lezen.
