KT Corporation (formerly Korea Telecom) and private equity fund Baring Asia are among the suitors vying to buy up to 100% stake in Bank of BarodaBSE 1.70 %’s credit and debit cards unit, people directly briefed on the matter said.
An outright sale could fetch India’s third largest public sector bank upwards of Rs 1200 crore, though sources did not rule out the possibility of the bank retaining residual stake in the arm.
A formal information memo containing detailed financials and revenue projections for the unit is likely to be circulated to prospective bidders in the first week of January. The sale could attract interest from a larger set of suitors once the document is shared, the people said.
PS Jayakumar, Bank of Baroda’s MD & CEO, declined to comment when contacted by ET.
A spokesperson for the bank said in response to emailed queries, “As a policy, Bank of Baroda does not comment on any market speculation. We have not taken any decision on BoB Financial Solutions yet. For any future development, the bank would inform stakeholders and regulators in a timely manner.”
Bank of Baroda has appointed investment bank JM FinancialBSE 1.04 % as advisor on the stake sale. Law firm Cyril Amarchand Managaldas was in the process of being mandated as legal counsel, sources said.
The cards unit is said to have doubled revenues over the past eighteen months as Bank of Baroda added 2.3 crore new customers post demonetization.
The unit issues credit cards and debit cards. It collects interest from credit card users and transaction charges from debit card users who swipe their cards at point of sale (POS) machines located at various merchant establishments such as shops, restaurants and fuel stations.
It also installs machines at these establishments, a business known as “merchant acquisition”, a method commonly used by banks to add new customers as the merchants typically create an account with the bank.
Bank of Baroda had close to 5 crore debit card customers, latest RBI data shows, and processed transactions worth roughly Rs 13000 crore annually through its cards unit. It also has over 1.5 lakh credit cards in circulation.
“The business has the scope to grow three to five-fold in a short span of time, but the bank needs funds to shore up its capital base which has triggered the decision to sell,” a person familiar with the management’s thinking said.
The unit previously known as BOBCARDS was renamed BoB Financial Solutions. The unit is a 100% subsidiary of the bank.
It roped in former head of Barclays Card in the UK, Manoj Piplani, last year to expand its focus on the business.
BoB Financial Solutions has revenues of more than Rs. 300 crore, according to sources, and has an operating profit margin in excess of 25%.
Jayakumar has prepared a plan to raise Rs 2000 crore by way of sales of non-core assets and monetization of some of the bank’s investments, sources said. Bank of Baroda has more than Rs 40,000 crore of non-performing loans on its books, for which provisioning requirements have only increased.
“Investors would be attracted to any outfit that has a substantial customer base because of the opportunity to bundle other products and create cross-sell opportunities,” said Sumeet Abrol, Partner, Grant Thornton,
“This is leading to high valuations for businesses in the cards segment,” he said.
Carlyle recently purchased 26% stake in the SBIBSE 2.04 % cards venture for around Rs. 1800 crore, valuing the business which has 40 lakh credit card customers at nearly Rs. 8000 crore. GE exited the business as part of the transaction.
Baring Asia was amongst the bidders which had expressed interest for the SBI unit. KT Corporation, formerly known as Korea Telecom, is the largest telephone company in South Korea.
