Tatas to pick up 4.6% in DCB

The Tata group will pick up to 4.6 per cent stake in Development Credit Bank (DCB) through its newly-formed subsidiary Tata Capital.

The board of DCB today approved raising up to Rs 310 crore by issuing preferential shares to five investors, including Tata Capital, at Rs 105 per share. This would form 16.6 per cent of the post-issue capital of the bank.

The other investors who will pick up up to 4.6 per cent stake in the Aga Khan Fund for Economic Development (Akfed) promoted bank are UAE-based Al Bateen Investment Co, GRA Finance Corp, Mauritius, DCB Investments, Mauritius and India Capital Opportunities 1, Mauritius.

DCB Investments is a special purpose vehicle floated by Schroders, a UK-based asset management company, to invest in the private sector bank. The preferential allotment is subject to the approval of the bank's shareholders and the Reserve Bank of India (RBI).

If the RBI approval is not received for any of the proposed investor(s), the board of the private sector bank will have the power to identify and negotiate with one or more investors or with other interested investors for selling the stake and will secure the RBI's special approval for the same, said the bank.

"Tata Capital's investment is a financial investment at this particular point. Over a period, if there is an opportunity to do something together we will look at it. We have a lot of synergies. There are financial services where only a bank can operate and similarly they can bring value through products like mutual funds, which we don't offer. However, there is no conditionality or commitment at this point in time," said Gautam Vir, managing director and chief executive officer, DCB.

The majority of the Tata group's stake would be held by Tata Capital. The group is yet to finalise on the other companies which would hold the remaining stake, said a senior DCB official.

The bank's capital adequacy ratio, which is currently at 10.5 per cent, will improve to 18 per cent after the capital infusion.

The bank's net worth will increase to Rs 635 crore after the issue. The regulatory requirement is Rs 300 crore.

The promoter's stake in DCB will fall to 24.8 per cent from 29 per cent after the preferential allotment. The RBI had asked the bank to pare down the promoter's stake to 10 per cent by September 2007.

"We will go step by step. We will discuss with the RBI on future course of action. Reducing the promoter's stake to 10 per cent will require us to raise a lot of capital," said Vir.

Tata Capital marks re-entry into the finance business after two years following controversies over then finance arm Tata Finance. The company was subsequently merged with Tata Motors.

Tata Capital will offer services in capital market, merchant banking, housing finance, private equity, and vehicle and retail finance.

Tata Sons had said that its other financial services companies including Tata AIG Insurance, Tata Asset Management Co and Tata Investment Corporation, would remain separate entities.

However, sources said a merger of these companies under one umbrella could not be ruled out.