The Reserve Bank of India (RBI) has shot down a proposal for merger of an old generation private sector bank and a new-age microfinance institution.
Kohlapur-based Ratnakar Bank and BASIX, promoted by social entrepreneur Vijay Mahajan, had sounded out RBI for merging their businesses.
While no formal application was made, both discussed the possibility with senior RBI officials, sources said.
The merger would have been the first of its kind, as it would have resulted in a bank buying a microfinance institution.
Bhartiya Samruddhi Finance, a Hyderabad-based microfinance institution, is a group company of BASIX.
However, with microfinance institutions facing a serious crisis due to a crackdown in Andhra Pradesh, their largest market, RBI rejected the proposal.
Interestingly, Mahajan is an advisor to the board of Ratnakar Bank. He advises the bank on financial inclusion.
Mahajan was appointed after the private sector lender overhauled its board in July 2010 by roping in former chief executive of Bank of America’s India business, Vishwavir Ahuja, as managing director and chief executive. After the new board was formed, the bank, which had been quiet till then, said it would expand aggressively.
“There was no formal proposal. It was a discussion on whether a merger could be worked out. This has been put on hold,” said a senior BASIX official. He requested anonymity because of the sensitivity of the issue.
RBI sources confirmed the development and said the regulator did not want to risk the financial stability of Ratnakar Bank, as BASIX operated in a sector that had been facing uncertainty of late.
This is despite Bhartiya Samruddhi Finance emerging out of the recent crisis in Andhra Pradesh relatively unscathed. It has opted out of the debt restructuring programme for microfinance institutions and is in the process of raising Rs 1,200 crore through debt instruments such as non-convertible debentures.
Ratnakar Bank also has strong financials. Its capital adequacy ratio was 34.07 per cent according to Basel II norms on March 31, 2010. Its net non-performing assets were below 1 per cent in 2009-10. Deposits stood at Rs 1,585 crore and advances at Rs 1,186 crore.
Earlier this year, it raised Rs 700 crore from investors, including Housing Development Finance Corporation, Cartica Capital and Norwest Venture Partners.
Sources said RBI felt the merger might stress the bank's asset quality.
Mahajan, who is currently abroad, was not available for comment. An e-mail sent to him went unanswered.
Senior Ratnakar Bank officials, including Ahuja, were not immediately available for comment. “We are working with BASIX on capacity building. We are going to continue with it. Vijay Mahajan is an advisor to our board on financial inclusion activities. Beyond that I will not like to comment,” said a senior Ratnakar Bank official.
Sources said the merger would have helped Ratnakar Bank extend its rural reach. It plans to double its network of 98 branches in the next two years. Most of the new branches will be in rural and semi-urban areas.
