HSBC stake in UTI Bank capped at 14.62%

The foreign bank's earlier plan of picking 20% in UTI Bank at a dead end for now.

The Reserve Bank of India (RBI) has asked HSBC to cap its holding in UTI Bank at 14.62 per cent. This essentially means that the foreign bank cannot pick up the 20 per cent stake in the private sector bank as it originally planned.

The transfer of the 14.62 per cent stake happened late last night in an off-market deal between Actis (formerly CDC Financial Services) and HSBC for $67.6 million.

The RBI has imposed some riders on HSBC's acquisition in UTI Bank. Apart from the foreign bank, no other HSBC entity can acquire shares in UTI Bank without RBI approval. HSBC also cannot have any directors on the UTI Bank board.

"There are also certain restrictions on the kind of dealings we can undertake with UTI Bank beyond day-to-day transactions," HSBC India chief Niall Booker said at a press conference Transactions between the two banks would have to be undertaken at arm's length, and RBI permission would be required in each case, he added.

Naina Lal Kidwai, deputy chief executive officer, HSBC India, told Business Standard, "We had made an application for a 20 per cent stake in UTI Bank but the central bank has given approval for us to hold only 14.62 per cent."

HSBC's agreement with Actis fell apart on June 9, when RBI capped its holding in the private sector bank and imposed riders on its acquisition. Necessary disclosures have been made in Hong Kong and London, where HSBC is based.

The UTI Bank scrip closed 1.53 per cent higher at Rs 122.40 on Thursday on the Bombay Stock Exchange (BSE). HSBC bought the shares for Rs 90 from CDC under an agreement signed in December 2003.

HSBC does not propose to make any further acquisitions in other banks at this point in time until the draft policy on foreign banks' holding in other banks is made clear.

At the same time, it also does not propose to increase its stake in UTI Bank. This leaves Actis to find another buyer for the balance 5.3 per cent holding in UTI Bank.

Booker said that the outcome "has not been a disappointment, given the peaks and troughs of the negotiations". The HSBC group continued to be bullish on India and this would not affect its investment plans for India, he added.

At the same time, the acquisition of 14.62 per cent holding in UTI Bank will not trigger any open offer, "as voting rights remain at 10 per cent," he said.