PNB to review holdings in joint ventures

Punjab National Bank (PNB), the third largest public sector bank, is reviewing the shareholding patterns of all its existing joint ventures.

PNB has three operational joint ventures with the US-based Principal Financial Group and a 20 per cent holding in Nepal's Everest Bank.

The three JVs are Principal PNB Asset Management Company, PNB Principal Financial Planners, an investment advisory and financial planning services company, and Principal PNB Insurance Advisory Company, an insurance broking firm.

"We are reviewing the operations and (shareholding) structures of these companies. We will then see whether we want higher stakes in the ventures or sell our stakes. We have informed our partners that we are reviewing the ventures. As of now, the ventures stand," PNB Chairman and Managing Director K C Chakrabarty said.

PNB has 30 per cent stakes each in Principal PNB Asset Management and PNB Principal Financial Planners with Principal owning 65 per cent stake and Vijaya Bank the remaining 5 per cent. In the insurance advisory venture, PNB holds 30 per cent equity, with Principal holding 26 per cent, Berger Paints 25 per cent and Vijaya Bank 19 per cent.

Mangalore-based public sector bank Vijaya Bank has decided to exit all these JVs and also the proposed life insurance venture, as the stakes do not make any significant additions to its revenues.

PNB is likely to complete the review in six months. The bank is also having a relook at the need to continue with its subsidiaries, PNB Gilts and PNB Housing Finance. The bank is examining whether greater shareholder value could be derived by merging the two subsidiaries or by keeping them as subsidiaries.

"The reason for the review is that we have too many subsidiaries (ventures). We need to see how to capitalise them. Besides, some of the subsidiaries are over-capitalised. The bank also has capital adequacy issues. We need to look at more effective use of capital," Chakrabarty said.

The bank's capital adequacy ratio stood at 12.41 per cent at the end of the first quarter of 2007. The bank requires at least Rs 4,000 crore over the next two years. The government holds 57 per cent stake in PNB, which is closer to the minimum required 51 per cent.

Chakrabarty said raising capital was not on immediate agenda, and the bank had room to raise Rs 1,500 crore of tier-I capital through perpetual debt and another Rs 1,500 crore through tier-II bonds.

"Vijaya Bank is still in the process of working out the modalities of its exit. The bank is likely to finalise (modalities) in the next 10-15 days," said Prakash Mallya, chairman and managing director of Vijaya Bank.

"If we are approached by Vijaya Bank to buy its stake, we would then ask them to first let us formulate our view and to wait for two more months or so. If Vijaya Bank wants to sell their stake to a third party, then we have no problem," said Chakrabarty.

The proposed life insurance foray of PNB, Principal, Berger Paints and Vijaya Bank has already hit a roadblock and looks unlikely to get off the ground.

"There has to be some rethink on the proposed venture. There is a problem as some of the shareholders are not willing to participate," said Chakrabarty.