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State-owned Canara Bank plans to sell its entire 70% stake in non-banking subsidiary Canbank Factors Ltd, according to a tender on the bank’s website.
The Bengaluru-based lender has invited bids from interested parties. The base price, a minimum realisation expected from the transaction, is set at Rs90 crore.
Apart from Canara Bank, Andhra Bank holds 10% in the factoring company, while the remaining 20% is held by the Small Industries Development Bank of India (Sidbi).
“This is a part of the non-core asset sales exercise. The bank wants to sell the entire stake together and is not keen on partial stake sale,” said a person aware of the development, speaking on condition of anonymity.
In fiscal 2017, Canbank Factors reported a total business turnover of Rs2,498 crore and incurred a loss of Rs39.8 crore due to provisioning for doubtful debts, according to information available in Canara Bank’s annual report.
SBI Global Factors Ltd is known to be the leading player in the factoring business, according to analysts.
Factoring, a leading source of funding mainly for small and medium enterprises, involves the sale of a company’s account receivables or invoices to a third party, a factoring company or a bank, at a discount.
The buyer, in turn, does the recovery as and when the invoice matures.
Usually, such a transaction is undertaken in order to meet the short-term liquidity of the firm.
The start of the trading platform for trade receivables and bills of exchanges of micro, small and medium enterprises (MSMEs) has changed the dynamics of supply chain financing such as factoring.
Under the electronic bill factoring exchanges facility, known as trade receivables discounting system, or TReDS, bills against large companies can be electronically accepted and auctioned so that the vendors can be paid promptly.
In November 2015, the Reserve Bank of India gave licences to three applicants to start TReDS.
According to Sundeep Mohindru, founder of M1xchange, the TReDS platform, since it is an online system, it has led to better visibility, transparency, as well as price discovery, which eventually leads to a fall in cost of funds for the underlying factoring transaction.