Fairfax capital infusion will add Rs 150-200 bn to Catholic Syrian Bank

The lender gets shareholders' nod for the deal, expects all regulatory approvals by month end, hopes to receive Rs 4.5 bn immediately from investor

The shareholders of Kerala-based Catholic Syrian Bank (CSB) approved its management's proposal for sale of 51 per cent of the total equity to the Indian arm of Fairfax Financial, the Canadian financial services and investment entity.
 
The sale will be for Rs 12 billion. CSB says it expects all regulatory approvals by the end of this month. Upon which, it hopes to get Rs 4.5 bn of the total infusion right away. “We urgently need capital,” said C V R Rajendran, managing director.
 
If, he told Business Standard, there was any delay in these approvals,  the Bank would dilute at least 5 per cent stake to raise funds to the extent of Rs 600 million; doing so would not need approval. If the Rs 4.5 bn did arrive without delay, the plan is to put Rs 1 bn of this into technology and another Rs 1 bn into either upgrading the existing 428 branches and to open more — the aim is to open another 1,000. The rest of the money would go into simply strengthening the Tier-I capital, to meet the capital adequacy rule from the expected growth in loans and investment, and to meet the Basel-III and Reserve Bank (RBI) guidelines. The money is to be formally infused by FIH Mauritius Investment, a subsidiary of Fairfax India Holdings.

According to the understanding, the Fairfax equity holding has a lock-in period for five years. However, the bank has to be listed on the stock exchanges by 2019. "We (Fairfax and CSB) might ask RBI to extend this (2019) deadline," Rajendran said. Another RBI requirement is to dilute the 51 per cent shareholding of Fairfax to less than 10 per cent within 12 years. Once it becomes the majority owner, Fairfax is to get two of the seven seats on the board of directors; the voting rights will be much less than its equity holding.
 
Rajendran says his target is to improve the net interest margin over the next two years from the current 2.7 per cent to 3.5 per cent. Also, to reduce the proportion of non-performing assets (NPAs) from 7.16 per cent to 2 per cent (gross NPA) and 4.45 per cent to one per cent (net NPA) by 2022.
 
“We have great admiration for the legacy and tradition behind Catholic Syrian Bank, an adored brand across the south of India. For almost a century, the bank has been a pillar of support for the community. We intend to take it to great heights through our re-capitalisation, as well as long-term orientation,” said Prem Watsa, chairman of Fairfax India and also chairman and chief executive of Fairfax Financial Holdings.