Canara Bank MF looking for partner

By Our Special Correspondent

CHENNAI, OCT. 19. Canara Bank has re-initiated the process of finding a joint venture partner for its mutual fund subsidiary - Canbank Investment Management Services Ltd. (CISL). The fresh exercise comes several years after failed parleys with American Insurance Group (AIG).

It may be recalled that the bank was in discussion with AIG in mid-1990s. It was, however, a different matter that talks had failed as AIG had demanded a `comfort letter' from the parent bank vis-a-vis the controversial Canstar scheme.

According to Mr. R. J. Kamath, Chairman and Managing Director, a due diligence exercise was already on for finding a partner. In his reckoning, the bank would most probably be in a position to finalise the joint venture partner within three months.

The bank's move comes even as competition in the mutual fund industry to woo small investors has turned fiercer by the day. Further, the volatility in the stock market has made `equity picking' for fund deployment that much trickier these days. Against these backdrop, it is quite natural for the bank and the like to go in for a joint venture partner who lend quality tips on fund management, in general, and equity investment, in particular.

CISL, which acts as an investment manager for all Canbank Mutual Fund schemes, has 15 schemes in operations. The total corpus of these schemes stood at Rs. 1,160 crores at the end of March 2000. Aggregate net assets amounted to Rs. 1,694 crores, involving nearly five lakh investors. The mutual fund subsidiary also has an offshore fund with a corpus of over Rs. 1,500 crores.

Meanwhile, another subsidiary of Canara Bank - Canbank Venture Capital Fund Ltd., - is proposing to set up a third fund in tandem with the Small Industries Development Bank of India (SIDBI). The fund size will be Rs. 50 crores. Mr. Kamath said this one could provide `angel funds' to entrepreneurs setting up facilities at Tidel Park in Chennai. Canara Bank, in fact, has become the only bank to open a branch at Tidel Park. The subsidiary, it may be recalled, already has two funds - one in alliance with the World Bank and the other in tandem with the parent bank.

Addressing presspersons earlier today, Mr. Kamath said Canara Bank would raise the tier II capital by going in for sub- ordinated debt to the tune of Rs. 300 crores. The exercise, he said, would be completed within 15 days. The current tier II capital of the bank stands at Rs. 500 crores. The chairman said the increase in tier II capital would bolster the capital adequacy ratio of the bank from the current 9.63 per cent to around 11 per cent.

Mr. Kamath indicated that the bank would pare the non-performing assets to 5 per cent by 2001 from the existing 8.9 per cent. In fact, he had informed the finance ministry that the bank would be in a position to realise Rs. 1,000 crores in cash and upgraded recovery this year.

Out of this cash recovery alone would be Rs. 650-700 crores as against Rs. 500 crores last year. In the first six months of the current financial year, the bank managed to make a cash recovery of close to Rs. 160 crores, he pointed out.

Dwelling on the first half performance this year, the chairman said the bank had posted an operating profit of Rs. 490 crores. It had set a target of Rs. 1,200 crores for the whole year.

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