Starting Q3, Aga Khan Foundation to cut holding through QIP, rights issue.
The Reserve Bank of India (RBI) has given the Aga Khan Fund for Economic Development (Akfed) time till March 2014 to lower its stake in co-operative-turned-commercial lender Development Credit Bank (DCB).
In line with RBI’s move to promote diversified shareholding, Akfed, which holds a 23.11 per cent in the bank, has to lower its stake to 10 per cent.
A specific exemption is required for an entity to hold over 10 per cent in a private sector bank. DCB’s application for an exemption has been turned down by RBI. It has not been granted branch licences since 2007 as it has failed to conform to the regulation.
The fact that DCB is the only loss-making commercial lender in the country, and has been in the red for the past five quarters, has also not helped its case for more branch licences.
Promoters of two other private sector lenders, IndusInd Bank and Dhanlaxmi Bank, both profitable, are also in breach of the 10 per cent cap. But, they were granted branch licences last year after they submitted roadmaps to reduce promoter stakes to within stipulated limits.
DCB Managing Director & CEO Murali Natarajan told Business Standard in an interview that the bank had already submitted a roadmap for dilution of promoter holding and was expected to begin the exercise through a qualified institutional placement or a rights issue in the third quarter of the current financial year. Akfed will not participate in the issue.
Besides, the bank is exploring the possibility of offering a strategic stake to long-term investors.
DCB has been weighed down by losses on unsecured personal loans, which accounted for up 34 per cent of the bank’s loan portfolio at its peak in August 2008. Since then, the bank has stopped issuing fresh unsecured loans. It ran down its unsecured book to about Rs 88 crore as on December 31, 2009.
Natarajan is confident the bank will swing back to profits in the current financial year. “It’s hard to get licences if you are not a profitable bank. We are keeping RBI informed about how the bank is progressing. So, once we start entering the positive territory, I don’t think that problem will be there. The second issue is ownership, on which we have submitted a roadmap. So, over time, I expect that we should be able to get a few branch licences,” Natarajan said.
DCB saw its promoter shareholding fall to 23.11 per cent from 24.86 after it placed Rs 88 crore fresh equity with institutional investors in November last year.
However, Natarajan said the bank would have to look at additional ways to reduce its shareholding.
“We can’t keep raising capital to reduce promoter shareholding. There has to be an appropriate time for doing so. Investors will be interested only if there is a return that they can expect,” said Natarajan.
Dubai-based investment fund Al-Bateen has a 3.7 per cent stake in the bank while Tata Capital and HDFC own 3.29 per cent and 2.02 per cent, respectively.
The bank’s capital adequacy ratio as on December 31, 2009, was 16.9 per cent, while Tier-1 capital adequacy was 13.6 per cent.
