Sumitomo Mitsui Acquires $ 2 Billion Stake in Fullerton, Pnb Advises Pnb Housing to Reshape Carlyle Deal
From launching a brand new 10-year government bond, advising RBI to banks on stopping LIBOR-linked contracts, or the penalties it has imposed on over a dozen banks, the ongoing PNB housing saga, to one Japanese lender venturing into retail finance business in India via Fullteron has had plenty of vacancies on the pink pages and 24-hour news channels this week.
Here is a quick race to catch up. Earlier this week, the Punjab National Bank (PNB) wrote to PNB Housing asking them to reconsider restructuring the funding plan from Rs 4,000 crores, which would have resulted in PNB’s stake falling from its current 32.6 percent to 20 percent and Aditya Puri advised a private equity firm. Carlyle’s stake rose to over 50 percent. Sebi asked PNB Housing to reassess the issue price for the preferred shares and warrants after a proxy advisory firm asked questions about the structure of the transaction, particularly the valuation. It will certainly not be a smooth journey for Puri. PNB also seems to bend under pressure. More action on that front next week.
Banking is not easy. Most importantly, it has not been easy for foreign banks to compete with large domestic banks with sizable market shares and branch networks to serve the masses. While some overseas lenders have stayed in India and continue to focus on the HNI category with wealth and asset management solutions, few have ventured into the retail banking business. Above all, Citi has announced its exit from the private customer business – and not without reason.
Now one of the largest financial groups in the world, Japan’s Sumitomo Mitsui Financial Group (SMFG), has announced that it will take its foray into retail banking in India by acquiring a large stake in domestic NBFC, Fullerton India. Business at home was slow for the Japanese major and he had plans for acquisitions in countries like India, Vietnam, etc. Fullerton is focused on the high margin unsecured lending business, from personal loans to MSMEs and vehicle loans, and more recently, equity and home loan loans. In the current environment, other established players are reducing their unsecured business to protect their balance sheets. 10 percent of Fullerton’s loans are lazy. It also reported a loss of Rs 1,157 crore for the FY21. Will SMFG succeed where others have failed? Do you have a radically new idea up your sleeve?
LIBOR or London Interbank Offered Rate has been manipulated for years. The 2014 Financial Stability Board report says cases of attempted market manipulation and misreporting of global benchmarks – along with the decline in liquidity in interbank markets for unsecured refinancing after the crisis – undermines confidence in the reliability of existing interbank benchmarks to have. In this context, the RBI issued a notice this week in which it calls on banks and financial institutions to refrain from entering into any new financial contracts that refer to the LIBOR as a benchmark as soon as possible and in any case by December 31, 2021. Axis Bank announced on Friday its first derivative business linked to SOFR (Secured Overnight Financing Rate). SOFR is the recommended US dollar interest rate benchmark, which is expected to replace LIBOR at the end of 2021.
The RBI has also introduced a new 10-year state security (G-Sec), which is now the benchmark paper. This comes after the outstanding limit in the current 10-year G-Sec with a coupon of 5.85 percent hits around 1.20-lakh-crore Rs, the level at which a new 10-year GSec is normally issued. RBI has also bought most of the older 10-year government bonds, and trading volumes in these have also dried up.
Several banks have also released their previous quarterly updates on advances, deposits, etc. HDFC Bank saw strong loan growth while Yes Bank was relatively weaker by comparison. Deposit momentum was the best for IndusInd Bank and Federal Bank saw its largest quarterly decline in business in nearly two years.
Eventually, the RBI fined 14 banks totaling Rs 14.5 billion for violating various norms regarding syndicated loans to a large undisclosed non-bank financial group. These banks have failed to set up a centralized depository for large joint loans, violated rules that say banks cannot own more than 30 percent of a company, whether pledged or otherwise, and also violated rules that prohibit banks from doing so To lend to companies in which their own directors have an interest. I’ll leave the guesswork to you, dear people!
First published: IS