Private equity (PE) funds have been increasingly focusing on Indian private sector banks, as the 2009 deadline for further liberalisation in the sector comes closer. PE funds have picked up stakes of about 5% in various banks such as Yes Bank, Catholic Syrian Bank, Dhanalakshmi Bank and Federal Bank. In certain cases, a consortium of PE funds has picked up stakes of up to 15% in banks including Catholic Syrian Bank.
Industry sources said though the sector was highly regulated with stringent rules by the Reserve Bank of India at present, it is expected to open up post-2009. RBI is set to revisit the regulatory frameworks, guiding the sector after 2009 and take a decision on whether it can be further opened up to foreign players.
Analysts pointed out that these banks would be the first to be gobbled up by foreign banks, once the sector is opened up. “Some of these banks are concentrated only in certain areas and naturally they would also want to expand and it would make sense for them to look for either buyers or at least to enter into joint ventures,” an industry expert said, adding that investments by PE funds would also have an impact on the valuation of these banks.
“PE funds are looking at the banking sector as future opportunity and, therefore, investments in the same are going up significantly,” Prateek Roongta, vice-president of India Value Fund told FE.
At present, a foreign or domestic bank has to take prior approval from the central bank in case it decides to acquire another bank. That apart, a bank can acquire only 5% stake annually in any Indian private sector bank. Foreign direct investment limit in the sector is capped at 49%.
Source: Financial Express