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TMB listing set to herald era of professional management at Nadar community-founded bank – Moneycontrol

In the new dynamic world of modern banking, the trust – of the promoters or the investors – would be guided largely by fundamentals, a promoter-member said. (Representative Image)

Tamilnad Mercantile Bank (TMB), a Nadar community-founded organisation, will list its shares on India’s stock exchanges on September 15, marking a new beginning for the 10-decade-old lender that’s endured a series of ownership twists and turns.

The bank’s initial public offering (IPO) of 15.8 million shares at Rs 500-525 apiece earlier in September was oversubscribed 2.8 times. The funds raised will be used to meet future capital requirements, said TMB, perhaps the last of the community-led private banks in the country to get listed.

TMB, founded in 1921, had been in the public eye of late due to squabbles among the promoters. The four promoter-outfits – comprising trading members of the Nadar community – belonged to four towns in Tamil Nadu and the bonhomie among them had given way to mutual distrust over the way the bank was functioning, or rather run by a section.

Misgivings among the warring promoters resulted in 67 percent of the bank’s shares slipping into the hands of the Ruias of the Essar group in the mid-90s. The stake sale was initiated by S Ashok of the Pioneer Group of Sivakasi, who is no more, and the other groups followed suit. However, the Ruias could not retain their dominant control over the bank for long.

Enter Sivasankaran

Not quite pleased with a large industrial group gaining control of the bank, the Reserve Bank of India (RBI) never acknowledged the share transfers to the Ruia outfits. The Ruias found themselves in a spot until they found a saviour in serial entrepreneur C Sivasankaran.

The Ruias sold the investment firms that bought the TMB shares from the Nadar community members and in return, got a cellular licence for Delhi from Sivasankaran. But the Nadar community wasn’t happy with Sivasankaran either – although he is from Tamil Nadu, he does not belong to the Nadar community.

The community members – including those who sold their shares initially to the Ruias – realised the blunder they had committed in letting the bank slip into the hands of outsiders. They closed ranks and launched a sustained campaign against Sivasankaran in an effort to bring the bank back into the Nadar fold.

They reached out to the community to contribute liberally and approached political parties across all hues to help in their cause. That was the beginning of a long struggle by the Nadar community members to reclaim TMB.

The Nadar community, which accounts for about 10 percent of the state’s population, has always proved to be significant for electoral politics. Soon, the dominant Tamil Nadu political parties – the DMK and the AIADMK – and even fringe outfits jumped into the fray to whip up community sentiment. Even the national parties – the Congress and the BJP – had to toe the line of the regional parties.

If the late S Ashok was the first to sell shares to the Ruias, he also spearheaded the battle to bring the bank back to the community. Not surprisingly, he was joined by the other groups who too had sold their shares to the Essar group in mid-90s.

The TMB retrieval campaign proved to be a heady cocktail with business, political and community overtones. Sometime in 2003, the Nadar community headed by the late B Ramachandra Adityan managed to buy a 34 percent stake (of the 67 percent held by Sivasankaran) for Rs 80 crore.

The issue then reached New Delhi, when, on the eve of general elections in 2004, then deputy prime minister LK Advani brokered a deal and Sivasankaran agreed to sell the remaining 33 percent TMB stake to community members for Rs 130 crore. But the deal lingered for various reasons.

Acting in concert

In May 2007, TMB transferred 46,862 shares of the bank to seven non-resident investors said to be led by entrepreneur Ramesh Vangal. On the same day, the bank also transferred 48,556 shares to MGM Maran, B Ramachandra Adityan, Gokul Patnaik, Vector Programme and others.

In October 2009, the RBI found that the Ramesh Vangal-led overseas investors and influential individual investors from the Nadar community had acted in concert and worked as a group to pick up a substantial stake in the closely held Tuticorin-based bank in 2007.

In all, these individuals and entities together held a 32.62 percent stake in TMB.

TMB was asked to approach the regulator afresh for the acknowledgement of the transfer of shares in favour of the non-resident investors and entities said to be spearheaded and promoted by Ramesh Vangal, chairman of Katra Holdings, and the individuals from the Nadar community.

The RBI inquiry into the matter was a fallout of a representation filed by one C Kanagaraj in pursuance of an order by the Bombay High Court in April 2009. These shares are still under litigation.

While the Pioneer Group remains one of the key shareholders of the bank, the recent IPO opened up the doors for 21 anchor investors including Bajaj Allianz Life Insurance, Nomura Singapore, Max Life Insurance, Societe Generale, Kotak Mahindra Life Insurance, Cholamandalam MS General Insurance, Authum Investment and Alchemie Ventures Fund. They pumped in about Rs 363.53 crore to pick up 7.12 million shares at a price of Rs 510 each.

The TMB management cancelled a planned offer for sale by existing shareholders because none of them – largely Nadar community members – were willing to offload their shares. This indicates the continued strong affiliation the community members have toward the bank.

Before the IPO, the financial institutions held about 25 percent of the bank’s shares. Of the remaining 75 percent, the holdings of Nadar community members could be 65-70 percent, according to a spokesperson of the promoter groups who said there were over 22,000 shareholders in the pre-IPO period.

TMB has come a long way from being a bank started by the Nadar community for the Nadar community. In its IPO documents, TMB stated that it is a “professionally managed bank and does not have an identifiable promoter.”

In the modern context, the bank cannot be run only on community sentiment, said one of the promoter-members of TMB, who declined to be identified. In the new dynamic world of modern banking, the trust – of the promoters or the investors – would be guided largely by fundamentals, the promoter-member said.

How will things pan out after the listing? Will the Nadar community be able to exercise complete sway over TMB as they have in the past? It appears that TMB is headed for interesting times.