Yes Bank-L&T Finance deal: is it for real?

RBI’s deputy governor R. Gandhi’s statement that an entity’s unsuccessful attempt to get a banking licence will not come on the way if it plans to buy a stake in an existing bank, will keep the merger speculation T

The merger, if that happens, will also give stability to the bank and help it broadbase its loan book through L&T Finance’s exposure to retail loans. For professionally managed L&T, it will fulfil its dream of having a bank under its fold. Photo: Mint

An entity’s unsuccessful attempt to get a banking licence will not come in the way if it plans to buy a stake in an existing bank, Reserve Bank of India (RBI) deputy governor R. Gandhi said last week. He doesn’t think that such a move would amount to back-door entry into banking. “They might have been rejected for bank licence but here they are going to come as a shareholder. It won’t be a bar just because their licence application was rejected,” he told reporters on the sidelines of a function in Mumbai. Although Gandhi did not name any company, his comments are keeping speculation on merger talks between L&T Finance Holdings Ltd, the non-banking financial arm of Larsen & Toubro Ltd (L&T), and Yes Bank Ltd alive for the time being.

Both Yes Bank and L&T Finance have denied news reports on their merger talks. In a stock exchange notice, Yes Bank said, it “does not comment on speculative news appearing in the media”, adding that the “bank keeps on evaluating capital raising alternatives, and has obtained board approval to raise equivalent of $500 million of fresh capital in...fiscal 2014-15”. L&T Finance, too, does not comment on speculative news. “As a part of its normal course of business, the company keeps evaluating opportunities on both organic and inorganic basis. The investors/stock exchanges would be informed as and when definitive developments take place,” it said.

Still the speculation is not dying down. There are two versions of the story doing the rounds. People close to Yes Bank are saying this is L&T Finance’s wish and the bank has no role to play. The L&T arm was one of the 25 applicants for a banking permit and was perceived to be a strong contender. Apparently, anticipating a licence, it had made many senior appointments and, instead of sacking them, it is exploring opportunities to get into banking. In the past few years, it has diversified its businesses by acquiring Indo Pacific Housing Finance Ltd; Family Credit Ltd, an auto and two-wheeler financier; and Fidelity’s mutual fund to grow its fund management portfolio. It also owns 4.55% stake in City Union Bank Ltdthrough a subsidiary. The other side of the story, narrated by people close to L&T Finance, is that the bank is the suitor. The reason? It has perception problems. Some analysts say Yes Bank suffers from asset-liability mismatches as it lends long but its resources are of short tenure. Secondly, its cost of fund is high as it depends on high-cost bulk deposits and inter-bank borrowings. Indeed, its low-cost current and savings accounts have doubled from 11.30% of total deposits in March 2011 to 22% in March 2014, but that’s not enough to bring the overall cost down.

NITESH KUMAR SINGH

PGDM 2ND 

SOURCE-- GOOGLE NEWS