Federal Bank scouts for PE investor to replace True North in NBFC subsidiary


MUMBAI : Kerala-based Federal Bank is exploring options to replace True North with a new private equity investor for its retail non-banking financial services arm, Fedbank Financial Services (Fedfina), as its existing PE partner completes five years in 2023.

Fedfina filed its draft papers with Securities and Exchange Board of India (Sebi) in February to go public.

In an interview with Mint, Shyam Srinivasan, chief executive officer of Federal Bank, and managing director, Fedfina, said he is in not in a hurry to list the NBFC before June.

“Standalone it (Fedfina) is doing well. We are not going to dilute hugely any time soon. We are okay to hold where we are. It depends on where True North is in its process. Getting another PE is an option. Over time, we may have to list, but there is no rush. Markets have moved differently since the time we filed for the DRHP,” he said. “Even if Fedfina does not raise funds till June it is in a good position Else, we will put in more money.” According to the DHRP, Federal Bank holds 73.3% in Fedfina, while the remaining 25.76% stake is held by True North, which bought the stake in tranches: 17.4% in November 2018 and the rest in September 2019.

According to the agreement True North has the option to increase its investment in Fedfina to 45%.

Federal Bank put in around 456 crore in Fedfina, including 266 crore since February 2020. True North has infused 375 crore, of which 93 crore was put in after February 2020 showed a Care Rating research report of January 2022.

Besides, regular capital support through equity infusion, Fedfina also receives funding lines from its parent. As of 30 September 2021, its borrowings from the bank were 21% of its total borrowings.

“Fedfina requires fresh capital next financial year going by its present growth rate. Else it will slow down. There are quite a few interested investors who are ready to take over True North’s stake or 100% in the company. But the bank is not willing to dilute its shareholding,” said a bank official in the know, seeking anonymity. “Going by the experience of the IPOs of Fusion Microfinance and Five Star Business Finance, we do not think this is the right opportunity to go for an IPO,” he added.

At September end, Fedfina, which primarily operates in retail loan segments, reported net profit of 46.16 crore compared to 40.3 crore in the year earlier. It had assets of 6,664 crore under management as on 30 June, and capital adequacy of 21%, according to Crisil Rating. Its return on assets grew to 1.7% in 2021-22 from 1.3% in fiscal 2021.

Fedfina also has a separate distribution vertical that sources home, auto, personal and SME loans for its parent.

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