Private-sector lender Federal Bank on Thursday said it would acquire a 26% stake in privately-held investment bank Equirus Capital Pvt. Ltd for an undisclosed amount, in order to diversify beyond traditional banking and create additional revenue streams.
The “strategic” minority stake will help Kochi-based Federal Bank offer wealth management services to its high net worth and NRI (non-resident Indian) clients, financial solutions for capital markets, structured finance, capital market products, advisory, and others, the two companies said in a joint statement on Thursday.
The transaction would help shore up non-interest earnings for Federal Bank, the statement added.
"The thought process (for Federal Bank) is around diversifying. They're seeing it from the perspective of value-unlocking and potential in the securities business. But it will take a lot of time before the transaction happens as contours of the deal are still not available," said an analyst at a domestic brokerage, asking not to be named.
The move comes at a time when large Indian lenders such as Yes Bank, Axis Bank, Kotak Mahindra Bank, and State Bank of India have spruced up their investment banking divisions to go head to head with foreign investment banks.
In 2010, Axis Bank had announced a buyout of the investment banking arm of Enam Securities in a deal valued at a little over Rs 2,000 crore. In 2012, the lender cut the deal size by almost one-third to reflect changed market conditions, bringing down the value of the all-stock transaction to Rs 1,396 crore.
Commenting on the move of Federal Bank, its executive director Ganesh Sankaran said, “With a shift in client preferences, our foray into investment banking will help us participate in opportunities and instruments beyond traditional banking products.”
“With this relationship, we intend to expand our product offerings in debt, and leverage on Federal Bank’s extensive network and client base to enhance each of our business lines,” said Ajay Garg, managing director and founder of Equirus Capital. Garg declined to disclose the transaction value.
Equirus Capital has so far handled 135 transactions worth $3.2 billion (Rs 20,801 crore) across mergers and acquisitions, private equity, initial public offerings, institutional placement, and structured financing. It also offers depository services, portfolio management and research, apart from equity broking.
Federal Bank operates 1,252 branches and 1,679 ATMs (automated teller machines) in the country. Founded in 1931 as Travancore Federal Bank, the lender was renamed Federal Bank in 1947.