IFC open to buy ICICI Bank's stake in Federal Bank

The International Finance Corporation (IFC), the World Bank's investment arm for the private sector, is open to acquire ICICI Bank's entire stake in the Federal Bank, which is the largest shareholder in the bank with a 20.76 per cent stake.

The IFC's south Asia director, Iyad Malas, said talks are on between ICICI Bank and the IFC on acquiring ICICI Bank's stake. The IFC would buy a part or the entire stake of ICICI Bank in the Kochi-based Federal Bank depending upon ICICI Bank board's decision. The Reserve bank of India (RBI) regulations require ICICI Bank to lower its stake in Federal Bank to 5 per cent.

The IFC is also keen on acquiring equity stakes in other Indian private sector banks to enable them to meet capital requirements for Basel-II.

Malas said the IFC can take minority interests in Indian banks to give them more headroom for capital, as their capital requirements will increase with Basel-II implementation.

The local banks also need to shape up their risk management systems and corporate governance to be able to compete with foreign banks, so as to be ready when the Indian market opens up for more foreign banking entities.

The IFC has been in talks with various private banks for buying minority interests. There are many small-sized banks like Lord Krishna Bank, Lakshmi Vilas Bank, Dhanalakshmi Bank, Catholic Syrian Bank and Ganesh Bank of Kurundwad, which require additional capital to be Basel-II compliant.

As per the RBI guidelines, a multilateral agency like the IFC can buy up to 10 per cent stake in a private sector bank. A foreign bank with Indian operations cannot buy more than 5 per cent stake in a private bank and a foreign bank with no operations in India can buy up to 10 per cent stake in a private sector bank.

The IFC currently has a 5 per cent stake in the ING Vysya Bank. It also has equity stakes in the Centurion Bank and SBI Capital Markets. The World Bank group entity also had a stake in the failed Global Trust Bank.

At $1.3 billion, India is the third largest recipient of financial assistance by the IFC. The IFC's largest exposure is to Brazil at $1.6 billion, followed by Russia at $1.5 billion.