Voting leeway to help old pvt banks raise fresh capital

The relaxation of the 10 per cent voting right cap in private sector banks may come as a major gain for the older banks.

The scrapping of the ceiling would allow promoters of foreign banks and of other private banks to exercise voting rights proportionate to their holding in the banks.

However, the relaxation will not immediately open the flood gates for investors as the Reserve Bank of India guidelines stipulate that an entity wanting to pick up more than 5 per cent stake should be "fit and proper" and take the regulator's prior approval.

This, senior bankers say, will ensure that the RBI has a final say on all investments made in banks.

The immediate beneficiary of the relaxation will be ING Vysya Bank. "This move will benefit ING Vysya Bank as the majority stake holder, ING Mauritius Investments, (43.82 per cent) will have a greater say in the management decisions of the bank," said banking sources.

"In the next few months, we could see some major business initiatives being announced by the bank," said the source. ING is also expected to raise its stake to 74 per cent.

HSBC is unlikely to benefit from the relaxation in voting right cap as the entity has no say in the management decisions and has no power to appoint directors on boards, said banking sources.

HSBC Asia Pacific Holdings UK Ltd holds around 12.40 per cent in UTI Bank. Old private sector banks like Karnataka Bank, Dhanalaxmi Bank, Federal Bank, United Western Bank, Bank of Punjab, Lord Krishna Bank and Bank of Rajasthan may benefit from this relaxation.

"The relaxation in voting rights should enable old private sector banks to attract fresh capital from foreign and domestic investor," said RM Nayak managing director Lord Krishna Bank.

Lord Krishna Bank has appointed investment banker DSP Merrill Lynch to look for a strategic investor for the bank.

Foreign investors and leading international groups, which have been planning to enter the Indian banking space, would now look at investing in these banks and restructure them instead of setting up new banking platforms, said a banking analyst.

"The RBI stipulation will limit the universe of investors that the old private sector banks could choose from. Besides, the banking sector regulator will now have the right to sack the bank boards," a private sector banker pointed out.

Banks will need capital to adhere to Basel II guidelines. Some of the existing investors in banks are not in a position to infuse fresh capital, said a managing director of a old private sector bank.

Hence, the governments decision to relax the voting right cap comes as respite as banks would now be able to attract fresh capital subject to RBI approval, he added.