Mumbai: The National Bank for Agriculture and Rural Development (Nabard) has bought an additional 7% stake in Small Industries Development Bank of India (Sidbi) for Rs900 crore from troubled public sector lender IDBI Bank Ltd, according to two people familiar with the matter, including Sidbi chairman Mohammad Mustafa.
This is the largest investment made by the apex rural financial institution so far, and raises its total shareholding in Sidbi to 10%.
The central bank restricted IDBI Bank’s operations in May after its financial ratios worsened. The bank, which is plagued by bad loans, is trying to sell its non-core assets, and had put its entire 16.25% shareholding in Sidbi on the block in August. The bank’s attempts to find potential buyers received tepid initial response initially. Last month, the bank informed the stock exchange that it sold a total of 10% stake in Sidbi.
According to data shared by Sidbi, existing shareholders bought most of these shares—6.99% by Nabard, 2.04% by Life Insurance Corp. of India (LIC), 0.5% by Vijaya Bank and 0.5% by Canara Bank. With this, LIC holds 14.25% in SIDBI, Vijaya Bank 0.8% and Canara Bank 3.64%.
Email and calls to Nabard did not elicit any response.
Nabard has various strategic investments. According to its FY17 annual report, Nabard has invested a total of Rs153 crore across nine companies so far, eight of which are linked to farmers and agriculture. Other investments include Agriculture Insurance Co. of India Ltd (AICIL), AFC India Ltd, National Commodity and Derivatives Exchange Ltd (NCDEX), Multi Commodity Exchange of India Ltd (MCX), Indian Financial Technology & Allied Services (IFTAS), CSC e-Governance Services India Ltd (CeGSIL), Agriculture Skill Council of India (ASCI) and National E-Governance Services Ltd (NESL).
“Nabard had to seek approval from Reserve Bank of India (RBI) to pick up over 5% in Sidbi. The institution was reluctant at first to increase its shareholding as it does not give an exit opportunity,” said one of the two officials cited earlier. That said, Sidbi is currently in the process of undertaking a major transformational rejig in its structure, products and processes, which also includes exploring options to maximise returns for its shareholders. Sidbi Version 2.0, as it is called, is a programme being implemented to transform Sidbi into a “more pervasive all-India financial institution”, rather than a development financial institution. Under this programme, the institution is exploring partnerships with banks for direct financing, setting up a digital financial marketplace connecting MSMEs with other financial institutions.
“Sidbi would need to find ways to suitably diversify the existing base of shareholders and provide adequate returns/ exits to present shareholders. This may involve reaching out to funds with patient capital or even going public or similar options,” according to a tender notice on its website.
Sidbi, set up in 1990 under an Act of Indian Parliament, is the principal financial Institution for the promotion, financing and development of the micro, small and medium enterprise sector. Over the years, it has become an important source of capital for MSMEs, start-ups and venture capital funds through its subsidiaries like Sidbi Venture Capital Ltd (SVCL). As on 30 June 2017, Sidbi had reported a 5.4% drop in net profit to Rs297 crore compared to Rs314 crore in the previous year. Its capital adequacy is comfortable at 30.6% and gross non-performing assets as a percentage of total assets are 1.4%. As on 31 March, Sidbi’s outstanding loan portfolio stood at Rs68,800 crore compared to Rs66,150 crore in the previous year