CSB to amend Articles of Association to give board seats to Fairfax

Catholic Syrian Bank (CSB) has decided to make changes in the article of association to pave way for Fairfax, which picked up a 51 per cent stake in the bank, to get two seats on the board, including the post of Chairman. 

According to the amendment, Fairfax would have a minimum of two directors always and there should be at least one Fairfax representative in all the committees.

If the representation is not there in the first meeting, the meeting should be postponed and if they cannot participate in the postponed meeting also, then the committee is allowed to go ahead without them, said bank officials.

The bank and FIH Mauritius Investments Ltd (FIH-M) entered into an investment agreement in February 2018 that was modified on October 15, 2018, pursuant to Fairfax agreed to acquire shares up to 51 per cent of the post issue paid-up capital of the Bank. The articles of association have been amended in order to bring in changes in line with the agreement.

The Reserve Bank of India had approved the first stake sale of an Indian bank to a foreign non-banking entity in July last year. According to the conditions set by the RBI, Fairfax cannot dilute its shareholding below 40 per cent for the next five years and if the Bank needs additional capital within that period, Fairfax has to provide it without increasing the shareholding of 51 per cent, said sources. During this period, Fairfax cannot also transfer shares without the approval of the Board.

Fairfax agreed to invest around Rs 12 billion in the bank. After the receipt of requisite approvals, the bank on October 19, 2018 allotted securities on a partly paid basis (1,98,32,130 partly paid equity shares and 6,64,63,329 compulsorily convertible warrants) according to the terms of the offer.

In a communication to shareholders, the bank said the board felt a few clauses in the Articles of Association had to be amended to incorporate the relevant clauses of the agreement. 

Thomas Cook India Chairman and Managing Director Madhavan Menon is expected to be the new chairman of CSB after the term of T S Anantharaman ends. Earlier, Fairfax had nominated Menon and Sumit Maheshwari, MD & CEO of Fairbridge Capital, owned by the Fairfax Financial Holdings, to the CSB board. 

The deal

CSB, established in 1920, is a full-service bank offering neighbourhood banking, non-resident Indian (NRI) services, small-to-medium-enterprise and wholesale banking services through 421 branches and 264 ATMs across India. The bank is headquartered in Thrissur, Kerala.

Fairfax agreed to pay about 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 with Fairfax coming on board," said Bank's MD and CEO C V R Rajendran, adding the share price of CSB was ~ Rs 70 a share two years ago. 

On October 19, Fairfax India Holdings Corporation has announced that it received all regulatory approvals and has completed the initial closing of its Rs 12.1 billion (approximately $164.7 million at the then exchange rates) investment in CSB. Fairfax India invested Rs 4.4 billion (approximately $59.9 million) in Equity Shares and Warrants (exercisable for Equity Shares) of CSBL. The remaining is payable within 18 months, following the initial closing, either upon request by CSBL or at the option of Fairfax India. Upon the completion of the aggregate transaction, Fairfax India would have 51 per cent of CSB, said the company.

The fresh capital would help the bank improve its CAR, which is at 9.91 per cent at present. CSB's balance sheet had stagnated at about Rs 250 billion due to lack of capital, said Rajendran. He plans to double it in three years after the deal. The number of bank branches would also go up to 1,000 across India from the 423 present. Nearly half of its branches are in Kerala at present. 

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