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basant
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Quote basant Replybullet Topic: Which private Bank will foreigners buy?
    Posted: 31/Aug/2006 at 12:16pm

Which private Bank will the foreigners buy?

The Indian private banking space will see a spate of mergers, acquisitions, and open offers in 2009. The second phase of the Banking reforms would enable significant de-bottlenecking and a number of regulatory relaxations would assist foreign Banks to establish themselves in India.

In 2009 wholly-owned subsidiaries of foreign banks will be allowed to list in the Indian market and dilute their stake so that at least 26 per cent of the paid-up capital of the subsidiary is held by resident Indians. In this period, foreign banks will be permitted to merge with and acquire any private sector bank and would be treated on par with Indian banks.

Currently foreign banks face the following restrictions

1)      Collectively these banks cannot open more then 20 branches each year. These approvals are accorded on a case by case basis. Recently Citibank got approval to open up a branch in Kolkata but they changed the location to Bangalore since that made more business sense. After 2009 Citibank and any other bank will be able to open as many branches as it likes and would not have to swap permissions.

2)      The voting rights of foreign banks in the local private banks are presently capped at 10%. This ceiling will be lifted.

I have never been an advocate of holding a stock and waiting indefinitely for an open offer. Sometimes companies never get sold. Two such stocks that come to mind are South Indian bank and Federal bank. Investors have been recommending these Banks for over 10 years yet nothing has happened. On the other hand Karur Vyasa Bank has gone up multifold without an open offer.

When foreign Banks are given freedom to operate in 2009 they could do two things:

1)      Expand rapidly into newer areas without having to swap permissions (Citibank example indicated above)

2)      Buy out any private/local/ regional bank and get a head start without wasting any time

I would assume that the foreign banks would opt for option (2) above rather then waste time in expanding independently.

Looking at the Indian private banking space the following events need to be revisited in order to forecast what could happen in 2009.

1)      HSBC holds 4.99% stake in UTI Bank. This is after the R.B.I. guideline compelled it to offload 7.19% of its stake into the open market. So we can know with reasonable degree of accuracy about the prospective bidder for UTI Bank.

 

2)      Rana Talwar of Centurion Bank knows that a foreign partner would bring in technology; processes and systems. Earlier this year Centurion Bank merged itself with Bank of Punjab and thereafter took over Lord Krishna Bank. Interestingly First India Capital a wholly owed subsidiary of Temasek the Financial arm of the Govt of Singapore is in exclusive association with Centurion bank for loan disbursements to the SME(Small and medium enterprise) customers.

 

3)      JP Morgan Chase directly holds 19.27% in HDFC Bank. In addition to this it further holds 1.29% through its Asset management company. So if HDFC Bank is sold out we would know who has a head start.

 

4)      Bajaj Auto holds 4.14% in ICICI Bank. Incidentally Bajaj is the 2nd largest single shareholder in the Bank after the LIC and is not eager to sell his stake. However market men have it that Anil Ambani would also be interested in the Bank as the acquisition would suit Reliance Capital’s financial forays. The junior Ambani is known for his take over bids and his proximity to the present management could help.

 

5)      Rana Kapoor and Ashish Kapoor have built Rabobank International Holding from scratch. The two Kapoors have been shown as promoters of YES Bank and they would like to increase the stake through Rabobank (of Netherlands) once guidelines permit. Presently the shares are held by Ashish and Rana Kapoor (20.42%) while 4.99% is held by Rabo bank directly. Another entity Rabo Bank International holdings holds 14.81% and the name suggests that it is closely linked to the Rabo Bank.

The following is the market cap of the Foreign Banks and the five Indian private Banks

The predators

HSBC

US $ 209.34 billlion

Citibank

US $ 243.63 billion

JP Morgan Chase

US $ 159.58 billion

Temasek

US $ 140 billion (Assets)

Standard Chartered

US $ 33.48 billion

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A quick look at the market cap table suggests that foreigners are Gulliver’s compared to the local Davids so getting into business would not be tough for them.

…..and the preys

UTI Bank

US $ 2 billion

ICICI Bank

US $ 11.51

HDFC Bank

US $ 5.8 billion

Centurion bank

US $ 0.81 billion

YES Bank

US $ 0.52 billion

Financials of these 5 Banks

Details

UTI Bank

Centurion bank

HDFC bank

ICICI bank

YES Bank

C.M.P

Rs 342

Rs 25.50

Rs 853

Rs 597

Rs 89

Adjusted Book Value

111

7

212

264

24

Price to Adjusted Book

3.08

3.64

4.02

2.26

3.70

RoE

20%

14%

31%

14%

15%

Business per branch

Rs 1297

Rs 593

Rs 1633

Rs 4268

Not available

Interested parties

HSBC

Temasek

JP Morgan Chase

Bajaj/ ADA Group

Rabo Bank

Conclusion:  Investors should hold shares of those domestic banks that are more retail oriented and have strong fundamentals. All the 5 banks recommended above fall into that category plus they could be takeover targets. I would suggest investors to take a pick from these companies or else make a quasi Private banking takeover Index and hold all the five stocks.

 
Source: Media reports and Bse website


Edited by basant - 19/Sep/2007 at 8:29am
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Quote Ajith Replybullet Posted: 01/Sep/2006 at 2:36pm
Karur Vysya went up on pure fundamentals  having a  a very low equity base in the late 19eightees and would be a good acquisition target but I do not think the promoters would sell their stake easily.Federal Bank is nobodys bank and the NRI base makes it attractive. Overstaffed Branchers with agressive unionized employees may not be attractive and the Yesbanlk and Kotak type initiatives may be preferred by most foreign banks.
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Quote bub100 Replybullet Posted: 08/Oct/2006 at 2:27am
Hi Basant Ji

are you also  tracking ING Vyasa?

As per the last new are going for more stake in the next 2 year.


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Quote basant Replybullet Posted: 08/Oct/2006 at 9:16am
Grat stock. ING Alsoa  mix of Insurance, AMC etc. I was not sure why they diluted their interest in the Insurance business to Exide some time back. But ING should be a big beneficiary post 2009.

Edited by basant - 08/Oct/2006 at 9:20am
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Quote psimajin Replybullet Posted: 07/Nov/2006 at 3:30pm

Can we play Insurance through  Exide ?

Someone was recomending me Exide,  It can be a multi mutlibagger.
 
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Quote basant Replybullet Posted: 07/Nov/2006 at 3:43pm
No. Exide holds only 49% I suppose play batteries through Exide and insurance through the leader always.
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Quote omshivaya Replybullet Posted: 07/Nov/2006 at 4:37pm
After the takeover Basant ji, is there any possibility that a bank like "Yes Bank" will still stay listed? If not, then is this a good bet for a 10 year play or just 4-5 years or until 2009(supposing there is a 100% chance of a takeover of Yes Bank)?
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Quote basant Replybullet Posted: 07/Nov/2006 at 6:32pm
Hey, that would need a Tarrot card reader
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