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BBL stake plans queers pitch for Vysya Bank

K Giriprakash & D John Samuel Raja

Bank Brussels Lambert's offer to increase its stake in Vysya Bank has put the bank's management in a quandary as it will affect the equity pattern in the insurance joint venture between ING and Vysya.

The proposed move by BBL, a subsidiary of ING, will violate the Insurance Regulatory Development Authority norms, as it automatically increases ING's holding in the insurance joint venture to over 26 per cent. Irda has capped foreign equity in insurance ventures at 26 per cent.

"We are in discussion with Irda and the RBI on finding a solution to this issue," Raghunathan, president of Vysya Bank said.

BBL recently approached Vysya Bank for picking up a higher stake and for a management control weeks before the Reserve Bank of India through a notification hiked FDI limit to 49 per cent from 20 per cent.

Currently, GMR Vasavi, the parent company, holds around 28 per cent in the bank, BBL holds around 20 per cent, IFC holds 10 per cent and the rest is with the NRIs and the public.

However, as and when BBL acquires 28 per cent in Vysya to increase its stake to the permissible limit for foreign equity holding to 49 per cent, the bank automatically becomes a foreign bank as IFC holds 10 per cent. This would increase the foreign holding in the insurance venture to 75 per cent. Thus, violating the 26 per cent ceiling set by Irda.

Currently, in ING-Vysya insurance venture, Vysya Bank's holding is 49 per cent, while that of ING is 26 per cent.

GMR Vasavi Group's stake itself in Vysya Bank will be reduced to around 5 per cent - 6 per cent from its existing 28 per cent once BBL picks up the permissible 49 per cent stake in the bank.

In another development, the bank's financial services subsidiary, has received Reserve Bank of India's approval to sell insurance products of its joint venture ING Vysya Life Insurance.

Vysya Bank is in the midst of a major streamlining of its operations. This includes a voluntary retirement scheme, restructuring of its operations and a Rs 600-million automation drive. The bank is undergoing a restructuring exercise which is expected to lead to a much leaner and fitter organisation.

Vysya Bank had a two-pronged approach to restructuring. One part consisted of the soft mode which entailed the organisation structure, while the second part consisted of changes in the top management structure.

While most of the top management consisted of new faces, the organisational structure was geared towards relationship mode. All the back office operations has been computerised and a call centre is being set up soon.

Under the automation programme, the bank is investing around Rs 600 million for computerising all the branches. By June 2002, about 200 out of 400 branches will be computerised covering around 85 per cent of the business.

The bank with a Rs 7 billion net worth has a CAR of around 12 per cent and expects to make a profit of around Rs 700 million during the current financial year.

The bank plans to continue its focus on the small and medium enterprises as it happens to be its core strength.

The VRS announced recently will lead to an outgo of around Rs 400 million which will be amortised over five years. The exercise of downsizing the staff by 25 per cent will take place in three years.

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