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Banks, NRI group launch fresh attempts to gobble up Catholic Syrian Bank

D Jose in Thiruvananthapuram

Another round of controversy featuring the Kerala-based Catholic Syrian Bank and the Reserve Bank of India seems imminent as efforts get underway to get the major private bank merged with another bank with a sound financial base.

CSB has been in the centre of a controversy since 1994 following takeover attempts by hostile groups. The RBI's merger proposal is bound to generate opposition from the Church and the employees.

The RBI is obviously considering this option in the light of the failure by the bank to achieve the capital adequacy ratio it had prescribed for banks following the attempt made by the Thailand-based Shyam Vidya Group to take over the bank.

The non-resident Indian group, which acquired nearly 40 per cent of equity of the 400-branch CSB, is yet to get the shares transferred in their name.

The RBI and the central government have already rejected the proposal, which was aggressively fought by the Church led by former Thrissur archbishop Joseph Kundukulam saying it will destroy the bank's Christian character.

Although the bishop has retired and the opposition from the church has thinned down, the RBI is not keen to consider the request for transferring shares in the name of the Shyam Vidya Group, as it feels this will create a bad precedent.

A highly placed source at Trichur told Rediff On The NeT that the RBI is unlikely to permit the transfer of shares under these circumstances.

However, the bank's board of directors and the NRI group have sought a reconsideration of the issue since the government's attempt is to attract NRI investments.

The RBI has thought of a merger as the only practical solution since the bank is not in a position to increase the capital adequacy ratio as nearly two million shares with the face value of Rs 10 are locked up.

Following the RBI's fresh thinking, several banks have shown interest in getting CSB -- it has a deposit base of over Rs 18.5 billion -- merged with them.

Bank of Baroda and Bank of India are in the forefront. The BoB chairman has in fact sent a fact-finding mission to Thrissur recently.

BoB is keen to get CSB as it will help in its corporate strategy to become a global operator. BoB has branches throughout north India, but it has only a few in the southern states.

The possible merger of CSB will add 400 branches, most of which are in Kerala, and in other neighbouring states, to BoB's existing network.

The source said the RBI is likely to take an in-principle decision on merger since even the ongoing rights issue is not likely to substantially increase the capital base of CSB. The present capital adequacy ratio of CSB is only 3.4 per cent whereas it has to achieve 10 per cent by the year 2000.

The management had thought of a rights issue to raise the ratio to at least seven per cent. However, the rights issue has become a truncated one with the RBI directing the issue to be curtailed to only 62 per cent shares held by non-NRI shareholders.

The CSB board has, therefore, decided to keep 40 per cent of the Rs 260 million issue unsubscribed till the share transfer wrangle gets resolved.

The ongoing truncated rights issue offering two shares for a share of Rs 10 each at a premium of Rs 22 will aggregate only Rs 157 million.

The issue, which opened on December 1, would close on December 22. The board of directors met today and monitored the issue. The board is optimistic that the issue would be fully subscribed.

The low capital adequacy ratio has already started affecting the bank's operations. It has been soft peddling on credit growth due to the low capital adequacy ratio.

While the deposits registered a growth of 21.01 per cent in the last year, advances saw only a moderate increase of 5.06 per cent. The total deposits as on March 31, 1998 stood at Rs. 18.5 billion as against the advance of Rs 10 billion. The bank has transferred Rs 63 million to various reserves for increasing the networth from Rs 287 million to Rs 348 million. This forced the bank to scale down its dividend payout from 15 per cent last year to 12 per cent this year.

Banking circles do not expect an easy solution to the problem, as the question of offloading the 40 per cent shares by the NRI group is a tough proposition. While the Bangkok-based NRIs had picked up the shares at Rs 85, there are no takers for the shares now even at Rs 32.

The Chartered Standard Securities India, a company formed by those who opposed the takeover of the bank, has lost interest in the battle, due to lack of support from the church.

While former archbishop Joseph Kundukulam had mounted a campaign against the takeover bid, his successor is not willing to join issue on the matter since he feels the bank has already lost its Christian character.

Barring a few Christians representing the board of directors, the bank has non-Christians at the helm.

The Chartered Standard Securities India, which had offered to buy the entire shares picked up by the Shyam Vidya Group, has backed out of its commitment, as it does not have the required funds.

The sources said the RBI considers a merger as the only option to save the bank from turning sick. A decision on the matter is expected to be taken soon.

Meanwhile, bank officers and employees associations have submitted a representation to the RBI to settle the row over the transfer of shares immediately, as they fear it would affect the bank in the near future.

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Kerala