A consortium of five investors led by Gaja Capital is seen as the front-runner for Nainital Bank, a wholly owned subsidiary of Bank of Baroda.
Piramal Alternatives, the private equity arm of Ajay Piramal-led Piramal Capital, Paragon Partners founded by Siddharth Parekh, Burman Family Holdings, the family offices of the FMCG major Dabur’s promoters, and the family office of Shiv Nadar, chairperson of HCL Technologies, are said to be part of this consortium.
Other investors who have likely shown interest in the bank include a consortium of investors led by Faering Capital, founded by Aditya Parekh and Unity Small Finance Bank.
Deal dynamics
According to sources, Bank of Baroda is expected to divest 50 per cent stake in the first tranche of divestment and over time it will completely exit its investment. BoB holds 98.57 per cent stake in Nainital Bank, when it took over the bank in 1973 under distress situation.
It is learnt that financial and legal due diligence by potential investors has been conducted. A binding proposal is expected to be submitted soon. While the finer details on pricing and valuations are not known yet, it gathered that BoB is keen to divest its stake for a premium.
“It may not be a very steep multiple, but definitely notches over book value,” said a person with knowledge of the development. Nainital Bank’s FY23 net worth stood at ₹765 crore.
It is also gathered that the investors who make an entry in the first tranche of divestment will have the right of first refusal when BoB decides to offload more stake from Nainital Bank.
Apparently, at this round of divestment, consortium investors will hold less than 10 per cent stake in the bank, with a board seat each. “The RBI approval route which allows an investor to hold 9.99 per cent stake in a bank will be adhered to,” said the sources quoted above.
Further, it is understood that the regulator also favours a consortium of investors rather than handing out the bank to one or two investors. “RBI prefers diversified ownership structure over-concentrated ownership,” said a highly placed source.
In 2010, RBL Bank or the then Ratnakar Bank Limited was the last occasion when a bank was sold to clutch of investors. Interestingly, Gaja Capital was among the consortium investors of RBL Bank.
Lifting the curbs
While Nainital Bank is licensed as a full-service bank, its operations are restricted to five states namely Uttarakhand, Uttar Pradesh, Delhi & NCR, Haryana, and Rajasthan. However, once the bid process formalizes and there is clarity on investors, it is learnt that the RBI may relook into the operative restrictions and remove the curbs.
Union issues
In 2018, fearing privatisation, the union of Nainital Bank moved the Delhi High Court to stall BoB’s stake sale. However, the court turned down the petition stating that ‘policy decisions involving complex economic factors’ cannot be interfered with by the courts. Since then, the union has not appealed the verdict. However, according to highly placed sources, one of the reasons why BoB is pursuing the stake sale in tranches is to appease the union and employees.