IndusInd Bank shares gained over a percent to Rs 1,367 apiece on August 20 after the Reserve Bank of India (RBI) approved plan to set up a wholly-owned asset management subsidiary.
Nomura is viewing this as a positive step, marking the bank’s entry into direct para-banking, potentially paving the way for smaller banks to follow suit. However, it adds that one should expect only a modest impact on valuations over the medium term.
The brokerage maintained a 'Neutral' on IndusInd Bank and kept the target unchanged at Rs 1,580 per share, which reflects a potential upside of over 17 percent from current levels.
The new asset management company (AMC) will handle mutual fund operations and benefit from an equity infusion by the bank. Previously, IndusInd Bank distributed mutual fund products but without significant scale.
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In FY24, the bank earned just Rs 50 crore from mutual fund and portfolio management services, a fraction compared to Kotak Mahindra, ICICI Bank, and Axis Bank, which generated Rs 280 crore, Rs 540 crore, and Rs 540 crore respectively from similar activities.
While a step forward for IndusInd Bank, Nomura emphasizes that the success of the new AMC subsidiary will depend on the scale it can achieve. The RBI’s approval is noteworthy as it marks a rare instance of a bank being permitted to set up a new AMC business (excluding legacy businesses), potentially setting a precedent for other smaller banks that have not thus far been able to set up such subsidiaries.
Moreover, it remains to be seen if RBI extends such relaxations to owning other para banking businesses apart from the AMC business, for instance insurance, broking, wealth to existing bank licensees.
This development also follows an earlier agreement between IndusInd International Holdings Limited (IIHL) and Invesco, where IIHL will acquire a 60 percent stake in Invesco Asset Management India, aimed at boosting asset management services in the region.
So far this year, the stock of this private sector lender has declined over 15 percent, underperforming benchmark Nifty 50's 12 percent rise.
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