In November 2014, Kotak Mahindra Bank had acquired another private sector lender, ING Vysya Ltd in a share swap deal.
Private sector lender Kotak Mahindra Bank Ltd on Friday said it will acquire a 99.49% stake in BSS Microfinance Pvt. Ltd for Rs. 139.2 crore.
According to a notification to the stock exchanges, the private sector bank plans to complete the all-cash deal within 3-4 months, subject to regulatory clearances.
The microfinance company had a net worth of Rs. 72.9 crore as on 30 June, while its total turnover was at Rs. 49.5 crore for the year to March. It had a loan book of Rs. 483 crore at the end of the first quarter and a total of 728 employees.
BSS Microfinance “extends microfinance to poor, rural and semi-urban women, primarily for income-generating activities, and also for life quality improvement activities”, the notification said.
The company’s loan book has been growing at 30% year-on-year and it reported a net interest income of around Rs50 crore in the year to March.
Ramesh Bellamkonda, promoter and chairman of BSS Microfinance, will continue to remain on the board of the firm. Kotak Mahindra Bank has entered into a non-compete agreement with Bellamkonda and plans to continue with the current management of the firm.
This acquisition gives Kotak Mahindra Bank access to BSS Microfinance’s growing customer base, which currently stands at over 217,000, and a network of 78 branches as of June, according to a statement by the bank.
“The microfinance sector has been growing at a fast pace. In fact, last year, the industry saw an over 80% growth. The growth of the industry had attracted us to look at the space. Till now, we did not have direct lending exposure to this space,” said Narayan S.A., president-commercial banking at Kotak Mahindra Bank.
The size of the company’s loan book, its track record of almost a decade and a professional management set-up were the factors which attracted Kotak to BSS Microfinance, he said.
“For BSS, the biggest constraint for growth was capital. Now, that constraint has been removed. We think we can scale up this business significantly,” said Narayan.
BSS is present in Karnataka and Maharashtra and is entering Madhya Pradesh.
Kotak’s immediate plan for the microfinance firm will be to expand its business to more states, he said.
“BSS’s loan book also qualifies for priority sector lending (PSL),” the bank’s statement said. Under norms issued by the Reserve Bank of India (RBI), domestic banks need to have at least 40% of their total loan book in the PSL segment.
For the bank, Deloitte Touche Tohmatsu India LLP and M2i Consulting undertook the financial and business due diligence, Cyril Amarchand Mangaldas was its legal advisor, and Kotak Mahindra Capital Co. was the investment banker, according to the statement.
The deal was announced after market hours on Friday.
This would be the second acquisition by the bank in less than two years. In November 2014, it acquired another private sector lender, ING Vysya Ltd, in a share-swap deal. The deal had valued ING Vysya at $2.5 billion, making it India’s largest bank acquisition.
In July, another private sector lender IDFC Bank announced that it had acquired 100% stake in Trichy-based Grama Vidiyal Microfinance for an undisclosed amount.
According to Alok Prasad, independent expert and former CEO of Microfinance Institutions Network, the interest in the microfinance space is an indication of the banking space running out of space to expand with corporate loans slowing, micro, small and medium enterprises (MSMEs) fraught with risks and a competition heating up in the retail lending market.
“Hence, going down the scale and tapping customers at the lower end of the market is an emerging strategy. One can see it as a business opportunity which is becoming increasingly viable to banks,” Prasad said.
The Kotak Mahindra Bank stock on Friday closed at Rs. 778.75, up 0.82% from its previous close. In comparison, Sensex closed up 0.14% at 27,865.96 points.
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