Tatas entering into banking

Recently formed Tata Capital is picking up a 4.6% stake in Development Credit Bank (DCB) for about Rs.85 crore fueling speculation that this may be a beginning of Tata Sons’ interest in establishing a banking entity.

Presently, Tata Capital’s investment is financial in nature though they can derive common synergy through financial services products such as mutual funds, insurance..

The Tatas are among a group of five investors who will collectively invest around Rs 310 crore in the private sector bank.

DCB is raising Rs. 310 crore though 16.6% stake to 5 investors which would improve its capital adequacy ratio from 10.5% to 18%. DCB has been a turnaround story as it made a net profit of Rs.7.3 crore in FY07 as compared to net loss of Rs.85 crore in FY06.

Tatas are not new to banking as before nationalization, it had a stake in Central Bank of India. Currently RBI does not permit Indian companies to operate a bank but come 2009, these norms are to be relaxed, paving the way for increased banking activity.