HDFC Bank Group, the country’s largest private banking group, has received approval from the Reserve Bank of India (RBI) to acquire up to 9.5% stakes in six private lenders, including ICICI Bank, Axis Bank, YES Bank, Suryoday Small Finance Bank, IndusInd Bank and Bandhan Bank. The group comprises HDFC Bank, HDFC Asset Management Company (AMC), HDFC Life Insurance Co Ltd, HDFC ERGO General Insurance Co Ltd and other entities under the same management or control.
RBI’s approval and conditions
HDFC Bank informed the stock exchanges on Tuesday that it had submitted applications to the RBI on December 18, 2023, seeking permission to increase the investment limits for its group entities in these six banks. The RBI granted its approval on February 5, 2024, through a letter that is valid for one year till February 4, 2025.
The RBI has permitted the HDFC Bank Group to acquire an “aggregate holding” of up to 9.5% of the paid-up share capital or voting rights of these six banks. The “aggregate holding” includes shareholdings by HDFC Bank, entities under the same management or control, mutual funds, trustees and the promoter group.
The HDFC Bank Group will have to ensure that the “aggregate holding” in these banks does not exceed 9.5% of the paid-up share capital or voting rights at any time. If the “aggregate holding” falls below 5%, prior approval of the RBI will be required to increase it to 5% or more.
Rationale and impact of the investments
HDFC Bank said that it does not intend to invest in these banks directly, but the investments are part of the normal business activities of its group entities. The group sought RBI’s approval as the “aggregate holding” was anticipated to surpass the prescribed limit of 5% due to market movements and portfolio rebalancing.
The investments by the HDFC Bank Group are expected to have a positive impact on the banking sector as they will provide capital support and confidence to these six banks. Some of these banks have faced challenges in recent years due to asset quality issues, governance concerns or regulatory actions.
The market reacted positively to the news as shares of YES Bank surged by 13% on Tuesday, while shares of Suryoday Small Finance Bank rose by 4%. Shares of ICICI Bank, Axis Bank, IndusInd Bank and Bandhan Bank were trading marginally lower.
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