SBI’s Indonesia, Kenya buys in limbo

MUMBAI: India’s largest bank State Bank of India appears to be on course to pull back from the acquisition of two banks in Indonesia and Kenya, announced last year after a review threw up nasty surprises.

A rethink has been prompted on the part of the bank management after a recent review and a fresh due diligence led to surprising findings, officials said.

Last year SBI announced that it had signed agreements with the management of Giro Commercial Bank of Kenya and PT Bank IndoMonex to take control of these banks to expand its footprint in the Far East and in Africa.

However, a review set in motion after the exit of AK Purwar as chairman of the bank in May has indicated a pile of bad loans, loss of capital and the lack of a licence for foreign exchange dealing, officials said. SBI had signed an agreement with the management of PT Bank IndoMonex, a closely held entity in Jakarta, to acquire 76% of the bank’s capital, subject to regulatory approvals and processes in mid-’05.

Similarly, it had firmed up a memorandum of understanding with Giro Commercial Bank, Kenya, to acquire close to 60% of the holding initially. The tab for these overseas buyouts was pegged at well below $10m then, but SBI hasn’t parted with any money so far, an official said. The review exercise, which has been completed, indicates that there is no value which accrues to SBI if the bank was to go ahead with its earlier plan.

The only acquisition which will be taken forward is the one in Mauritius — Indian Ocean International Bank. This bank was taken over by SBI in ’05-06. A senior bank official said that the move has to be viewed from the bank’s perspective of optimal use of its capital especially for overseas expansion. SBI needs to beef up its capital to bolster its business this fiscal.

The government had also told the management to revisit its strategy to expand overseas which was pushed during the tenure of the previous chairman, AK Purwar. The rationale then was that an outward growth strategy was in tune with the finance minister’s desire to see SBI leading the charge of Indian banks to back the global expansion plans of Indian companies.

SBI had then outlined its plans to derive close to 20% of its profit from global operations by ’08 compared with a measly 5% last year. The bank has a network of 70 overseas offices in 30 countries with the total assets of foreign branches and subsidiaries aggregating $17bn. In FY06, SBI recorded $69.6m from its foreign operations compared with $46.51m a year ago.