Bank of Baroda (BoB) has received a fairly good response from reputed institutions, including private equity funds, international financial institutions and small finance banks, to its expression of interest for bringing in strategic partner in subsidiary Nainital Bank Ltd (NBL).

The public sector bank is planning to divest majority stake and relinquish its control of the subsidiary. BoB holds a 98.57 per cent stake in NBL.

Sanjiv Chadha, MD and CEO, BoB, said private equity funds, international financial institutions, and some small finance banks have evinced interest in NBL.

“So, there is a variety of interest. But again you don’t expect that any single player would probably pick up the entire stake. So, it probably will be a consortium because there are restrictions as to how much stake any single player can hold in a bank,” he told businessline in an interaction.

Chadha observed that BoB would probably engage again with the interested parties over the next three to six months to zero-in on a viable consortium which could run NBL.

“I don’t think we would be looking at exiting (NBL) immediately. But I think we would like to come, at least in a reasonable time frame, to what is the regulatory allowed exposure to another bank.

“The Banking Regulation Act does not allow one bank to hold more than 30 per cent (and now as per fresh guidelines, maybe 25 per cent) of the equity of another bank,” he said.

Multi-stage process

Chadha noted that the dilution of stake in NBL by BoB may be a multi-stage process. But BoB needs to do that.

BoB in its preliminary information memorandum (PIM) said NBL needs additional capital to meet its business growth and capital expenditure for setting up new branches and improving infrastructure at the existing branches.

“There is a good opportunity for NBL to bring in a suitable partner and also leverage its growth potential by transforming itself from a traditional bank into a technology-based bank to enlarge presence and market share substantially,” per the PIM.

The strategic partner will help BOB to reduce its stake in percentage terms, which will help meet the regulatory requirement.

Over time, with increase in valuation of NBL, BOB can bring its stake further down in line with the regulatory norms through an initial public offering, further stake sale, etc.

NBL was originally promoted by Late Bharat Ratna Pandit Govind Ballabh Pant and few prominent personalities of Nainital in 1922. In 1974, the Reserve Bank of India directed Bank of Baroda to manage the affairs of NBL. Registered office of NBL is situated at Nainital. In 2021, RBI granted NBL permission to open branches in 5 States— Uttarakhand, Uttar Pradesh, Delhi & NCR, Haryana and Rajasthan. Presently, NBL has 166 branches and 1,158 employees.

As at March-end 2022, NBL had deposits and advances of ₹7,486 crore and ₹4,211.79 crore, respectively. The net profit of NBL rose to ₹28.93 crore in FY22, against ₹1.26 crore in FY21.