ABN Amro says creeping acquisition norm too slow

Finance minister P Chidambaram's assurance that foreign banks will be allowed to pick up 10 per cent stake a year in Indian private banks does not excite ABN Amro Bank NV, the Netherlands-based banking giant.

Lex Kloosterman, CEO private clients/new growth markets, ABN Amro, said the 10 per cent creeping acquisition that the government is talking about throws up a lot of questions. "It is too slow a route to gain management control in a bank."

The finance minister a month ago had announced that foreign banks will be allowed to purchase up to 10 per cent stake a year in private banks. This way majority control can be obtained by the foreign entity over 3-4 years.

"If this route is permitted the key question is how to deal with the governance in the private bank while management control of the bank changes gradually," he explained.

"There is also the problem of not being able to grow the overall pie. We would have to maintain two entities separately until we achieve majority control. Ideally we should be able to achieve sales and management synergies," pointed out Kloosterman.

He was in Mumbai to kick off the India leg of the ABN Amro tennis tournament to be held in Rotterdam.

ABN Amro has gone public in its interest in picking up strategic stakes in India. "If and when the FDI gates open up we will pick up stakes in a number of banks but it is not a preferred position. We would rather pick up majority control in a private bank overnight with commensurate voting rights," said Kloosterman.

ABN Amro has adopted such a model in Italy where it holds minority stakes in a number of local banks.

The ownership pattern of private banks has been a matter of much debate with the finance ministry and the Reserve Bank of India (RBI) having different views on it.

Chidambaram's announcements in October was in contrast to the RBI's controversial stand that a foreign bank with presence in India should not hold more than 5 per cent stake in a private bank stated in the draft guidelines on ownership and governance in private sector banks released in July.

RBI is expected to come out with the second draft guidelines on the issue after collecting feedback from the market.

The government also intends to lift the 10 per cent cap on voting rights in private sector banks. The voting rights cap limits an investor's voting right at 10 per cent irrespective of its shareholding.