HSBC on Tuesday bought the entire 20.08 per cent stake of CDC Capital Partners in UTI Bank. In the second stage, HSBC will make an open offer for an additional 20 per cent stake in the bank.
CDC sold its stake at over Rs 90 per share. At this price, the deal will cost HSBC around Rs 415 crore (Rs 4.15 billion). CDC had bought a 26 per cent stake in UTI Bank in 2001 for Rs 157.59 crore (Rs 1.57 billion).
At the time of going to press, both HSBC and UTI Bank executives were unavailable for comment.
This is the first case of a foreign bank picking up a minority stake in a private Indian bank through this route.
Earlier, ING Bank bought a substantial chunk in Vysya Bank. Bank Muscat is in the process of picking up a 26 per cent stake in Centurion Bank.
Reserve Bank of India rules allow a bank to hold up to a 30 per cent stake in another bank as investment.
However, HSBC will have to seek the approval of the Foreign Investment Promotion Board for its investment in UTI Bank.
The UTI Bank scrip on the Bombay Stock Exchange on Tuesday hit an all-time high of Rs 96.10 and closed at Rs 95.10, gaining Rs 11.16.
According to sources, CDC's stake sale to HSBC had the approval of both UTI and UTI Bank. "A lot of players had approached CDC for this stake. UTI was looking at the right kind of money and the right brand for the bank," a source said.
The Life Insurance Corporation, General Insurance Corporation and UTI are the original promoters of UTI Bank. LIC now holds a 13.50 per cent stake, GIC 7.39 per cent and UTI 33.46 per cent.
This makes HSBC's stake in the bank the largest after UTI. Indeed, if HSBC's open offer is fully subscribed to, HSBC will emerge as the largest shareholder in the bank.
Just a day before striking the deal, Michael R P Smith, CEO-designate of HSBC, had said the bank was willing to take even minority stakes in local banks. This was a reversal in the group's strategic growth plans in India.
The bank has all along been looking for majority stakes in local banks.
"We are willing to take piecemeal stake in two or three entities, and see how these acquisitions work out," Smith had said.