Banking Gains

ING Vysysa Bank is making all the right moves to turn into a top-notch bank. But its share price has already run up quite a bit

That it would happen was never really in doubt. In fact, for seasoned industry watchers, the news that Dutch financial services group ING was hiking its stake in south India-based Vysya Bank simply confirmed what they had anticipated would happen all along.

In a deal valued at $70 mn ( Rs 340.8 crore or roughly 626.9 per share), the GMR group -- one of the largest shareholders -- sold its 23.99 per cent stake to Bank Brussels Lambert (a subsidiary of ING). Bank Brussels already owned 20 per cent; the sale upped its stake to 43.99 per cent. More significantly, it also marks an important chapter in the history of Indian banking: it's the first time a foreign bank is snapping up management control of a local bank. If the deal does manage to get the nod from the regulatory authorities, it will clear the path for more foreign banks to do such similar deals.

The proposed acquisition has cast Vysya Bank (to be re-christened as ING Vysya Bank) in a favourable light with a growing band of analysts. Not only will it be able to reach into the deep pockets of its acquirer, it may eventually be able to call on the global resources of the ING group -- something even some of its biggest rivals can't claim to do at the moment.

"Banking is, undoubtedly, a deep-pockets business," says a banking analyst. "And having a partner who has that is a major plus". While it may be riding high right now, the going has not always been easy for Vysya Bank. It was not too long ago when the Bangalore-based bank had been creaking under a pile of bad loans.

But some hard work at restructuring operations, tightening credit controls and bringing in a new chairman, has done quite a bit of good: the pace of additional bad loans has slowed dramatically. From the troubling 10 per cent in 1999, non-performing loans (NPAs) have been sliced to 4.3 per cent in 2002. That's not all.

Last year, the two main shareholders, the GMR Group and Bank Brussels Lambert, decided that it was time to revamp the top management team as well, to turn the bank more "market-minded". Heading the list of