Tata Sons may take 10% in UTI Bank

Tata Sons, the holding company of the Tata group, may pick up a 10 per cent stake in UTI Bank. It has already completed the due diligence process and the deal is likely to be finalised next month.

Once the pricing issue is sorted out, the bank's board will formally make the announcement. UTI Bank chairman P J Nayak refused to comment on the development. A senior Tata executive confirmed the development.

At the initial stage, Tata Sons will treat this acquisition as an investment because the present RBI regulations do not allow a large industrial house to pick up more than a 10 per cent stake in a bank.

However, in due course if the regulator relaxes the norms, the Tatas may emerge as a strategic investor in the bank.

It may be recalled that the Tatas had originally planned to reposition the non-banking finance company in the group, Tata Finance, as a bank.

However, the plan did not materialise due to the RBI restrictions. Besides, Tata Finance also found itself in a mess over alleged financial mismanagement by its former managing director.

The stake of the bank's original promoter, UTI, is now 41.74 per cent. This stake is being held through the development reserve fund (DRF) of UTI-I, which will manage all assured-return schemes of the mutual fund.

The bank has been planning a 15-20 per cent preferential issue before the end of the financial year. This will bring down the UTI stake to around 35 per cent.

Besides Tata Sons, there can be at least one more investor who will be offered a stake in this round.

In September last year, UTI Bank had made a preferential issue to CDC Capital Partners. The issue was made at Rs 34 per share. The bank's scrip is now hovering around Rs 44.

According to sources, at least six suitors have shown interest in picking up a stake in the new-generation private bank.

The list includes Chrysalis Capital, J P Morgan, and Development Bank of Singapore as a Citibank fund.

Salomon Smith Barney has been mandated to manage the raising of additional equity through the preferential issue route.