Private equity firm Olympus Capital Holdings Asia has acquired 4.8 per cent stake in Tamil Nadu-based Karur Vysya Bank Ltd for over Rs 200 crore (approx. $38.34 million) through market transactions. It is the second investment by the Asia-focused private equity firm in an Indian bank after it invested in HDFC Bank in 1999.

The shares of Karur Vysya were picked up by Olympus India Holdings Ltd on Wednesday through deals on the BSE and the NSE. 

“The financial services segment has always been a key industry vertical for us and this is our eighth investment in the sector in Asia,” said Gaurav Malik, managing director of Olympus Capital. Since its establishment in 1997, Olympus Capital has invested over a quarter of its capital in financial services businesses.

The private equity firm also has a successful track record of investing in banks in India. Olympus Capital invested in HDFC Bank in 1999 at Rs 60 per share and sold off its stake over the years, making 4x-5x returns. HDFC Bank was incorporated in August 1994 and has now become India’s third largest lender by assets.

According to Malik, financial services happen to be one of the most active segments for Olympus in terms of deal-making – not only in India but also across Asia.

“The interest cycle has already peaked in India and even the RBI has started the process of bringing down the rates. As interest rate cycle starts to move back downwards, financial services will see good growth over the next 4-5 years,” he said.

The investment in Karur Vysya is the third deal by Olympus in less than 12 months. In January, it invested $100 million (Rs 500 crore) in DM Healthcare Pvt Ltd, a Kochi-based healthcare services provider with operations in India and the Middle East. In September 2011, Olympus also picked up $50 million worth of stake in Hyderabad-based Vishwa Infrastructures, focused on developing and executing integrated water supply and wastewater projects.

Olympus Capital’s interest in Karur Vysya Bank comes even as ChrysCapital, another private equity firm, has recently picked up shares in the lender. ChrysCapital bought 3.92 per cent stake in Karur Vysya for Rs 160 crore ($31.3 million) in March. Other investors in Karur Vysya Bank include GMR Group (4.93 per cent), Rakesh Jhunjhunwala (4.27 per cent) and Argonaut Ventures (1.03 per cent).

The shares of Karur Vysya closed at Rs 398.9 a unit on the BSE, up 1.97 per cent in a Mumbai market marginally up by 0.2 per cent. Olympus Capital bought the shares at Rs 390 a unit, a 2-3 per cent discount to the closing price.

For the first nine months of FY12, Karur Vysya Bank reported 19 per cent increase in total net income to Rs 894.5 crore, with net profit rising 20 per cent to Rs 35.49 crore. In Q3 FY12, Karur Vysya Bank’s total business grew 35 per cent year on year, with deposits and gross advances rising 35.2 per cent and 34.9 per cent, respectively.

“Karur Vysya is one of the best-run regional banks, has low level of NPAs and has been growing very consistently,” said Malik on the investment.

“Asset quality remained healthy with flat gross NPAs at 1.45 per cent and reasonably high PCR (provision coverage ratio) at 80 per cent,” said a report from Dolat Capital on Karur Vysya with a target price of Rs 434.

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