Bank of Baroda plans to sell Nainital Bank to bolster its balance sheet
January 11, 2018
Bank of Baroda, India’s third-largest state-run lender, is seeking to sell unit Nainital Bank Ltd. as it sheds non-core assets to bolster its balance sheet, people familiar with the matter said.
A decision on the size of the stake to be sold will depend on approvals from the Indian central bank, the people said, asking not to be identified because the information is private. Bank of Baroda owns 98.6 percent of the 96-year-old Nainital Bank, which had about 77 billion rupees ($1.2 billion) of assets at the end of March.
Private equity firms have expressed initial interest in the lender, the people said. Nainital Bank has about 135 branches spread across five Indian states, according to its website. Bank of Baroda joins government-run rivals including State Bank of India and Punjab National Bank in efforts to raise funds by selling non-core assets as the world’s highest bad-loan ratio erodes profitability. Twenty-one state-controlled lenders in the country account for about 90 percent of the $210 billion stressed loans in India’s banking system, Credit Suisse estimates show.
Deliberations regarding a potential sale are at an early stage, and there’s no guarantee they will lead to a transaction, the people familiar with the matter said. A spokesman for Bank of Baroda declined to comment. Nainital Bank reported 484 million rupees of net income in the year ended March 31, little changed from the previous year, and its bad-loan ratio stood at 5 percent.
That compares with a soured-debt level of 9.6 percent for the country’s banking system, Reserve Bank of India data show. A sale would help Bank of Baroda, helmed by Chief Executive Officer P S Jayakumar, buttress its capital buffer and clean its balance sheet of soured debt. The Mumbai-based lender had a capital adequacy ratio of 11.6 percent as of Sept. 30, an exchange filing shows.
Prime Minister Narendra Modi’s administration has announced plans to infuse $33 billion into state-run lenders and directed them to shed non-core assets. While Bank of Baroda’s risk buffer is at comfortable levels, it will need growth capital as credit demand picks up in the reviving economy, Jayakumar said at a November briefing.