Bank of Baroda plans to divest 49% stake in credit card subsidiary

Public sector lender Bank of Baroda (BoB) is planning to rope in a strategic investor for its credit card subsidiary, BOB Financial Solutions (BFSL), by divesting 49 per cent stake. 

At present, BoB holds 100 per cent in the entity.

 While the Mumbai-based lender has a huge customer base to tap into, it needs expertise for growing credit card business which strategic investors can bring to the table. 

The bank is looking at timeline of 12 months to bring in a partner for technology, distribution and sourcing knowledge, bank executives said. 

Capital market firm ICICI Securities is advisor for the deal. Bank officials said the card in force are about 1.85 million and the outstanding credit portfolio is expected to be Rs 3,500 crore by the end of March. 

Going by the current pace of growth, the cards in force could double to cross three million mark and credit outstanding to be above Rs 5,500 crore by March 2024, they added.   

As the credit card business is one of the key product offerings to its customers, BoB has stated that BFSL remains strategically important for it. This is also reflected in the track record of providing branding, management and funding support to BFSL and its stated intent of continuing to do so in future.

BoB has continued to support BFSL’s growth with capital infusions, including Rs 300 crore in 9M FY2023 (Rs 100 crore in FY2022). In addition to the credit card business, BFSL manages BOB’s merchant acquiring business.

According to rating agency ICRA BFSL has seen a rapid growth in its credit card base over the last two years with the same expected to continue over the next few years. However, the overall asset quality levels have remained relatively weak given the profile of the customers with significant exposure to the self-employed segment.

Efforts to scale up as well as to gradually increase the contribution of the salaried segment could support an improvement in the asset quality levels over time. The operating profitability in the card segment has also improved, supported by the higher card and receivables base along with cost containment measures, it added.