May 12: The Federal Bank board approved the move of home-grown equity player True North to acquire a stake of 26% in FedBank Financial Services Ltd (FedFina), a subsidiary of the Kochi-headquartered private sector bank.
Financial details of the transaction haven’t been disclosed in the statement that was released on Friday by the private sector lender. However, reports indicate that True North has purchased 26% stake in the NBFC sector of Federal Bank for Rs400 crore.
ICICI Securities Ltd, which was the exclusive financial advisor to the transaction, is advising Federal Bank on the FedFina stake sale, which is likely to conclude within a few weeks. The transaction is however subject to statutory and regulatory approvals.
The investment will be used by FedFina to expand its branch network in addition to supporting its growing asset business. FedFina is also eyeing to strengthen its capital adequacy and diversify funding sources in a bid to improve the company’s financial fundamentals.
Federal Bank Managing Director & Chief Executive Shyam Srinivasan has been quoted by a Mint report as saying that it endorsed the business outlook and capabilities of FedFina. “This transaction and the expertise that True North carries with it will turn out to be seminal in the growth and expansion of FedFina,” he said.
True North believes that the investment will help FedFina continue with its growth. Accordingly, FedFina will also explore cross selling to potential customers along with its current customers in addition to increasing the product offering.
In its recent earnings conference call, Federal Bank reported a sharp dip in profit for the second quarter in a row. The net profit of the private lender for the March quarter fell 44% year-on-year due to bad-loan recognition under the new guidelines laid out by RBI.