Fairfax starts infusion in Catholic Syrian Bank, forks out Rs 4.40 bn

This is the first deal in which a foreign investor is taking up a majority stake in a private bank after the RBI tweaked ownership norms in May 2017

Prem Watsa-promoted Fairfax India Holdings Corporation infused Rs 4.40 billion into Catholic Syrian Bank (CSB) on Friday, ending the six-month wait. The matter had been dragging over pending approvals from the finance ministry. 

The Canadian billionaire’s investment arm has committed to infusing Rs 12-billion capital in the bank over a period of time and Friday’s investment is part of that.

The Kerala-based private sector bank has completed the allotment of equity shares and convertible warrants to Fairfax India through its wholly-owned subsidiary FIH Mauritius Investments Ltd (FIH-M).

This is the first deal in which a foreign investor is taking up a majority stake in a private bank after the Reserve Bank of India (RBI) tweaked ownership norms in May 2017.

CVR Rajendran, chief executive officer of CSB, confirmed the development and said the Rs 4.40 billion growth capital would be deployed immediately as demand was high in the market. This is 25 per cent of the equity and 40 per cent of the warrants. The balance amount, Rs 7.60 billion, would be utilised as and when required, he said.

The money is coming in as growth capital and considering that there is a lot of demand in the market, it could be deployed in money market instruments like commercial papers and NCDs immediately and will be quickly transferred to the loan assets.

A done deal

• May 2016: RBI tweaks ownership norms for private sector banks, allowing foreign investors to pick up majority stake on a case-by-case basis

• June: Fairfax India seeks RBI approval to acquire a controlling stake in CSB

• Dec: RBI gives in-principle approval to Fairfax to pick up a 51% stake

• July 2017: Fairfax pulls out of the deal due to overvaluation

• Feb 2018: Fairfax comes back with expected infusion of Rs 12 bn for 51% of CSB

• July: RBI okays the deal

The shares and warrants have been issued on a partly paid-up basis and will be fully paid-up within 18 months following the initial closing. This will lead to FIH-M holding 51 per cent of the total paid-up capital of the bank. Necessary permissions for increasing the overall non-resident (foreign) shareholding of the bank to 74 per cent of the paid-up capital have also been obtained. 

Rajendran added that the money raised through this transaction would ensure that CSB was well capitalised to grow its balance sheet to over Rs 500 billion and also support its expansion plans across India. “Part of the capital will also go towards improving our physical infrastructure, enhancing IT, digital capabilities and significantly strengthening our brand presence across core geographies,” he said.

Fairfax earlier agreed to pay Rs 140 a share as part of the deal announced in February. “While other bank stocks are falling, CSB's share price is increasing as people are confident about its prospects and because Fairfax has come on board,” Rajendran said earlier, adding the share price of CSB was Rs 70 a share two years ago.

The fresh capital will help the bank improve its capital adequacy ratio (CAR), which is 9.91 per cent at present. CSB's balance sheet had stagnated at Rs 250 billion due to lack of capital, said Rajendran. He plans to double it in three years after the Fairfax deal. The bank will also have 1,000 branches against 423 now, and will become pan-Indian. Nearly half of its branches are in Kerala. The capital from Fairfax is also important for CSB to return to profit by FY20. It posted Rs 975-million losses in FY18 due to higher provisioning and write-offs on account of non-performing assets.

On the initial public offering, Rajendran said the bank was going ahead with its plan to list by 2019. But sources in CSB said Fairfax might approach the RBI to extend the deadline. One of the conditions by the RBI, while giving its nod for the Fairfax-CSB deal, was that Fairfax should eventually reduce its holding in the bank from 51 per cent to 41 per cent.