Kotak to buy BSS MFI for Rs 139.2 cr in all cash deal

Kotak Mahindra Bank today announced it is acquiring Karnataka-focused BSS Microfinance for Rs 139.2 crore in an all cash deal, which would enable the private sector lender to enter the high-growth microlending segment.
"The only constraint for BSS was capital, which will not be a problem now. The systems, management team and low NPAs are positives. We will expand the business into newer geographies and products," KMB's President for commercial banking Narayan SA told reporters here.
The acquisition follows its Rs 15,000 crore merger with ING Vysya Bank last year, and also a similar move by smaller rival IDFC Bank, which snapped up Grama Vidiyal Microfinance in July 2016.

It also comes months ahead of all the small finance banks going operational, which will heighten the competition in the micro loans segment, as a bulk of SFBs have their roots in micro-lending.
Narayan said KMB does not have a direct exposure to the microlending segment, which grew at 80 per cent last fiscal. It has indirect exposure in form of 'term loans' to microfinance institution (MFI) players and securitisation deals, which would amount to Rs 1,500 crore of the Rs 1.7 trillion loan book.
BSS, which lends only to women under the joint lending group model, has an average loan size of Rs 22,000 and all the loans qualify under priority sector lending (PSL) guidelines, which would be of a help to the private sector bank.

The microlender had witnessed a 30 per cent growth in its loanbook which stood at Rs 483 crore as of March 2016, Narayan said, adding the non performing assets are also very low at 0.003 per cent overdue for a day or more.

The operations of BSS, which was started by Ramesh Bellamkonda over a decade ago, are predominantly spread in Karnataka, Narayan said.
It has also expanded into Maharashtra and has plans to enter Madhya Pradesh, he said.
The consideration paid is to buy out Bellamkonda's 99.49 per cent stake in the company, and it does not include any money poured into the business, Narayan said, adding that KMB is committed to fund the business expansion.

An ex-employee has the remaining minority stake of about half a percentage point and talks are on with him to acquire it as well, he said.
The deal also gives KMB access to over 2 lakh
customers of BSS and the bank will try selling savings products to the customers, he said.
It had a post tax profit of Rs 14 crore on a net interest income of Rs 50 crore last fiscal, Narayan said, asserting that the price paid is fair.
The KMB scrip closed 0.82 per cent up at Rs 778.75 apiece on the BSE.