For TMB, IPO turns into an identity tussle

Manickam Mahal, a banquet hall located in the port city of Thoothukudi in Tamil Nadu, turned into a battlefield on January 29. It was the venue for the annual general meeting of the 96-year-old Tamil Nadu Mercantile Bank, where shareholders were to vote on the hotly debated issue of whether the bank should go for an initial public offering and let 'outsiders' into the bank or not.

For TMB, the IPO is a deeply divisive issue that has crystallised shareholders into two opposing camps, one calling for an IPO to infuse fresh capital into the bank and the other strongly opposing it.

What followed at the meeting, therefore, was a shouting match with supporters of each side raising their voices to make an impact. In the end, however, the debate boiled down to a choice between meeting the bank's financial exigencies and retaining its identity.

A clutch of shareholders led by mining baron V Vaikundarajan of VV Minerals is staunchly opposed to the IPO, which they say will lead to 'outsiders' (non-Nadars) having a say in the bank.

Their argument is that the bank was created for the Nadars and it should be owned by them. "It is a fight for prestige," says a shareholder.

It is easy to see why the IPO is such an emotive issue for the shareholders. The bank was started in 1921 with the purpose of fostering development of the Nadar community, which historically has been known to have suffered social oppression and economic deprivation at the hands of the upper castes in Tamil Nadu.

"This community was not allowed to enter temples, any public place, schools and was not even allowed to enter banks, forget about access to banking services," says Vaikundarajan whose business interests span beach minerals, sugar and the media.

Over the years, the bank has helped many community members like him to set up their own businesses.

Even so, foreign investors and non-resident Indians hold 42 per cent in TMB. In 2007, businessman C Sivasankaran sold his share in the bank to a clutch of foreign investors led by Rajat Gupta, Ravi Trehan and Cuna Group Mauritius, among others, leading to a few non-Nadars being included on the board of the bank for the first time in its history, even though the Nadars still hold a controlling stake.

These foreign investors, who shelled out nearly four times more than the original buyers, have infused around Rs 150 crore in the bank, and their investment is believed to have grown three fold.

According to bank sources, the FIs and NRIs bought the share for Rs 24,000 apiece in May 2007, while currently the bank's share is trading at around Rs 93,000 in private markets.

For investors, TMB is one of the most sought-after banks for its steady profitable streak since inception. Despite a string of problems, including the Reserve Bank of India restrictions on opening branches in the metros and Tier I cities because of an ongoing ownership battle in the bank, its profit has shot up from Rs 6,984 in 1921 to Rs 379.40 crore in 2014-15, up 26.14 per cent from the 2013-14 level.

However, factional feuds have dogged its history, resulting in legal battles. In 1994, a dispute between two Nadar groups led to a group of shareholders selling their 25 per cent stake to the Ruias of Essar group. Subsequently, the Ruias raised their stake to 67 per cent with an eye on management control. However, in view of RBI's objection to an industrial group holding stake in a community-led bank, the Ruias had to temper their ambition.

As the Nadars didn't have the money to buy back the shares, Sivasankaran stepped in on behalf of the community and bought Essar's stake for Rs 65 crore. His plan was to sell the shares back to the Nadars for Rs 155 crore. As the Nadars struggled to pay him off for nearly 10 years, Sivasankaran sold the shares to a group of FIIs in 2007, sparking protests and legal battles at the bank.

The community members are determined to avoid such a predicament this time around. "Once we committed a mistake by letting outside investors, we don't want to repeat the same mistake again," says Chandrasekaran, another shareholder.

To retain control, those opposed to the IPO are willing to infuse fresh capital in the bank to meet its capital adequacy ratio and even buyback the share of foreign investors to consolidate their holding over the bank.

Whether the bank's shareholders have voted for or against the IPO will be known later this month. For now, the Nadars are hoping the outcome is in their favour.