The Reserve Bank of India’s (RBI) new norms on ownership and corporate structure allows promoters of private sector banks to hike their stake to 26 percent from 15 percent in the long run.
In IndusInd Bank, the Hinduja brothers hold a 16.5 percent stake. Ashok Hinduja, chairman, IndusInd International Holdings Ltd (IIHL), in a statement said, “We believe this measure of increased promoter holding will be of benefit to all stakeholders: the regulator, the banking institution and its clients, particularly at this time when the Indian economy is poised for exponential growth.”
“We eagerly await the operating guidelines as it gives the promoters an opportunity to inject capital to increase stake up to 26%,” he added.
Emkay Global said this could be beneficial to IndusInd Bank (if the RBI does not have issues related to promoters). The increase in promoter holding will enhance the bank’s financial strength, and its clients will be protected.
In the case of DCB Bank, the promoters own 14.9 percent. The promoters are Switzerland-based Aga Khan Fund for Economic Development which holds 14.08 percent and Platinum Jubilee Investments Ltd with 0.79 percent, as per data available on BSE.
Impact on financials
Anil Gupta, vice-president and sector head, ICRA, said if the increase in the promoter group stake is through preferential allotment of shares, it could lead to fresh capital infusion by promoters in the bank, strengthening its capital position. But if the increase is through the purchase of shares from the secondary market, it may not directly impact the bank’s financials, Gupta added.
An Economic Times report states that IIHL, the promoter of IndusInd Bank, will raise over $1 billion once the operational guidelines are in place. In the report, Ashok Hinduja said it will need more than $1.1 billion to increase their stake to 26 percent and that the promoters would not like to place all the money in one go.
New norms encourages new entrants
A higher promoter stake could potentially attract new entrants to the banking sector, especially those who transition from a non-banking financial company (NBFC) to a bank, as the promoter shareholding in most large NBFCs has been higher than 40%, said Gupta of ICRA.
Conversion to a bank would have required the promoters of NBFCs to compulsorily dilute their shareholding to 40 percent within five years of operations and eventually to 15 percent by the 15th year of operation. Gupta adds that this could have been a big deterrent for existing promoters of NBFCs for transitioning to banks.
Changes in NOFHC
The central bank has retained the non-operative financial holding company (NOFHC) as the preferred structure for all new licences to be issued for a universal bank. It will be mandatory in cases where promoters or promoting entities/converting entities have other group entities.
Banks under this structure such as IDFC Bank and Bandhan Bank may be allowed to exit such a structure if they do not have any other group entities in their fold, Emkay Global said in a note.
As of now, the RBI has given in-principle approval to IDFC First Bank and Bandhan Bank. However, Emkay Global in the note said IDFC will have to divest a stake in its others businesses for a reverse merger with IDFC First Bank, while Bandhan Bank is not keen on diluting the structure as of now.The changes in the holding company structure are not going to be an easy transition especially given the synergies that these financial institutions have currently, Kotak Institutional Equities said in a note.