In a bid to make its IDBI Bank acquisition offer more attractive, Emirates NBD has decided to deploy a wholly-owned subsidiary in India, according to people in the know.
While Emirates NBD India has been active for some years, with three branches in India, it received an in-principle nod from the Reserve Bank of India to set up a wholly owned subsidiary. This would be through conversion of its existing branches in Chennai, Gurugram and Mumbai.
According to the people quoted above, a wholly owned subsidiary allows a foreign lender to have unfettered branch addition; it also allows such lenders to easily acquire a domestic franchise. Back in 2020, RBI allowed DBS Bank India to take over Lakshmi Vilas Bank to ensure the financial stability of the local lender’s business.
Such a model ensures that the foreign lender’s domestic unit maintains capital in India. This makes it more difficult to repatriate capital back to home markets, which branch-model foreign banks regularly do. For the regulator, the wholly-owned subsidiary model grants more comfort, the people quoted above said.
Large foreign lenders such as HSBC and Standard Chartered Bank have largely stayed away from the wholly-owned subsidiary model owing to double capital charges. Essentially, the foreign lender must infuse capital into its domestic unit and then further hold capital against the investment. Relatively smaller lenders such as DBS Bank and State Bank of Mauritius have used the WOS route to expand operations here.
Emirates NBD is currently in the race to acquire IDBI Bank, alongside Prem Watsa’s Fairfax Capital. A wholly-owned subsidiary will likely give Emirates NBD an edge, as Fairfax Capital anyway has other complications.
As Fairfax Capital already owns a controlling stake in CSB Bank India, a fresh acquisition of IDBI Bank might make it difficult to get an immediate approval from the regulator. In CSB Bank’s case the approval was given only because the domestic lender was undergoing financial difficulties. For IDBI Bank, no such issues are applicable. The regulator typically does not allow one promoter to own multiple banking franchises.
According to another person with direct knowledge of the matter, Canada’s Fairfax Capital is working out a special structure to ensure that IDBI Bank and CSB Bank are held separately from each other, at least initially.
Bidders for IDBI Bank are expecting the process to close either by the end of this financial year or early next year.
They are also keenly watching any developments on the employee side. Despite its private sector status, IDBI Bank is widely seen as a government-owned lender among its employees. Due to this, the employee unions are still strong at this bank, which may cause some impediments in the closure of the deal or any retrenchment at the bank.
Potential bidders are watching to see if there are any inordinate delays in the completion of the transaction due to unions opposing foreign investors.
Queries mailed to Emirates NBD did not immediately yield a response.
. Read more on Business by NDTV Profit.Emirates NBD is currently in the race to acquire IDBI Bank, alongside Prem Watsa’s Fairfax Capital. Read MoreBusiness, Economy & Finance, Markets, Notifications
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