Six months later, Fairfax Holdings and CSB deal still stuck in govt files

It has been more than six months since Prem Watsa-promoted Fairfax Holdings said it would infuse Rs 12 billion into Catholic Syrian Bank (CSB) for a 51 per cent stake. However, the finance ministry is yet to clear the deal, though the Centre had said it would clear such foreign direct investment (FDI) proposals in 8-10 weeks. 

The Reserve Bank of India had approved the first stake sale of an Indian bank to a foreign non-banking entity in July.

C V R Rajendran, chief executive officer of CSB, speaking on the sidelines of the bank's annual general meeting at Thrissur, said, "They may be taking time as this is the first such case. We are hopeful of getting all the approvals and the money by next week.” 

CSB will be able to complete the deal with Fairfax after getting clearance from the Department of Financial Services (DFS) for increasing FDI limit in the bank to 74 per cent of the paid-up capital. The banking regulator had tweaked ownership norms in May 2017.

Under the standard operation procedure (SOP), issued by the Department of Industrial Policy and Promotion (DIPP) in June last year, a period of eight weeks was set to clear FDI deals from the time of the receipt of proposals. The SOP also said that the authority concerned — which, in case of banks, is DFS — “shall, within the next two weeks, process the proposal for decision and convey the same to the applicant”.  

Under the SOP, the DIPP forwards the proposal to the RBI, external affairs ministry and Department of Revenue, who may then give their comments directly to the administrative ministry or the department concerned within the stipulated time, wherever necessary. 

According to sources, lack of procedures, systems and awareness among the departments has been the reasons for the delay.

Fairfax agreed to pay Rs 140 a share as part of the deal announced in February. "While other bank stocks are falling, CSB's share price is increasing as people are confident about its prospects and Fairfax coming on board," said Rajendran, adding the share price of CSB was Rs 70 a share two years ago. 

An insider said further delays could make it difficult for the bank to meet RBI norms on capital adequacy ratio (CAR) and to grow its balance sheet. The fresh capital will help the bank improve its CAR, which is at 9.91 per cent at present. CSB's balance sheet had stagnated at Rs 250 billion due to lack of capital, said Rajendran. He plans to double it in three years after the Watsa deal. The bank will also have 1,000 branches, against 423 now, and will become pan-India. Nearly half of its branches are in Kerala. 

The capital from Fairfax is also important for CSB to return to profit by FY20. It posted Rs 975-million losses in FY18 due to higher provisioning and write-offs on account of non-performing assets. 

On initial public offering, Rajendran said the bank was going ahead with its plan to list by 2019 according to the RBI’s direction. But sources in CSB said Fairfax may approach the RBI to extend the deadline. One of the conditions by RBI, while giving its nod for to the Fairfax-CSB deal, was that Fairfax should eventually reduce its holding in the bank from 51 per cent to 41 per cent.