Banks raise hard cash from stake sale

Banks are cashing out of their subsidiaries and non-core assets to shore up their capital base, and the trend will continue this year. At a time when non-performing assets (NPAs) have risen to nearly ~9 trillion for 34 listed banks that have announced their results so far, and provisioning against them is eating into capital, banks do not have much option other than unlocking value in their subsidiaries.

Either banks are raising funds by divesting their stakes in subsidiaries through offers for sale, or there is outright stake sale. In the banks’ profit and loss statements, the proceeds are being shown under either “other income” or “treasury income” in case banks have sold stake in companies for investment.

The impact of the stake sale on their profits net of cost is not available, so it is difficult to quantify the extent to which these exercises boosted their profits. The most prolific of the sellers in the past year are also the largest in the Indian banking system. State Bank of India (SBI), India’s biggest lender, listed its life insurance arm, SBI Life, and mobilised ~54.36 billion through that.

Banks are cashing out of their subsidiaries and noncore assets to shore up their capital base, and the trend will continue this year.

At a time when non-performing assets (NPAs) have risen to nearly ~9 trillion for 34 listed banks that have announced their results so far, and provisioning against them is eating into capital, banks do not have much option other than unlocking value in their subsidiaries.

Either banks are raising funds by divesting their stakes in subsidiaries through offers for sale, or there is outright stake sale.

In the banks’ profit and loss statements, the proceeds are being shown under either “other income” or “treasury income” in case banks have sold stake in companies for investment.

The impact of the stake sale on their profits net of cost is not available, so it is difficult to quantify the extent to which these exercises boosted their profits.

The most prolific of sellers in the past year are also the largest in the Indian banking system.

State Bank of India (SBI), India’s biggest lender, listed its life insurance arm, SBI Life, and mobilised ~54.36 billion through that.

ICICI Bank, the largest private lender, sold 7 per cent in ICICI Lombard General

Insurance in an initial public offer (IPO) for ~20.99 billion. The sale resulted in a gain of ~17.11 billion in the consolidated

financial results for 2017-18.

Besides, the bank also sold 20.78 per cent in its investment banking arm, ICICI Securities, in an IPO for ~34.80 billion.

The bank had cashed in on its subsidiary in 2016-17 too, when it listed ICICI Prudential Life Insurance and sold its stake worth ~60.57 billion in 2015-16.

SBI has said it will unlock value in its subsidiaries this year too. The bank will sell 3-5 per cent in SBI General Insurance this year. And in SBI Capital Markets, it will shed 24-49 per cent.

“All our subsidiaries have done exceedingly well. They hold a large value, which is waiting to be unlocked. We have plans to unlock that potential in the current as well as in the next year,” said SBI Chairman Rajnish Kumar after the bank’s fourth-quarter results.

“This year we will be looking at bringing in a partner for SBI Caps. We will be shedding 24-49 per cent,” he said.

The bank also has plans to list its credit card subsidiary in 2019-20, said Dinesh Khara, managing director, SBI.

Considering that other mutual funds are getting listed, ICICI Bank may list its asset management company, ICICI Prudential Mutual Fund, India’s largest, say analysts. Smaller banks are following suit. Karnataka Bank is planning to sell 8.26 per cent in its general insurance arm, Universal Sompo.

IDBI Bank said it would sell stake in its mutual fund arm. In 2017-18, it divested in the National Stock Exchange and NSDL e- Governance Infrastructure, resulting in capital gains of ~2 billion and ~1.12 billion, respectively.

IDBI Bank, with a gross NPA ratio of nearly 28 per cent, is in the process of selling its entire 30 per cent stake in NSDL.

The Federal Bank board approved the sale of 26 per cent in its non-banking arm FedFina, and scam-hit Punjab National Bank is expected to revive plans of listing PNBMetlife insurance arm in the current fiscal year.

Recently, Union Bank of India too reported that its partner Dai-ichi Life Holdings has bought 39.62 per cent in mutual fund Union Asset Management Co.

Earlier, Bank of India in 2016-17 had sold 18 per cent in insurance arm to Dai-Ichi Life Insurance for ~5.4 billion.

And when banks are not selling their stakes, they are closing down their overseas presence. For example, Bank of Baroda on Friday said during 2017-18, the bank had initiated closing down its operations in Bahrain, the Bahamas, and South Africa.

“The closure of these territories is at an advance stage,” it said in a filing.

Either banks are raising funds by divesting their stakes in subsidiaries through offers for sale, or there is outright stake sale