Why HDFC Bank is buying stakes in these six banks
What's the story
The Reserve Bank of India (RBI) has given approval to HDFC Bank to acquire up to 9.5% stakes in six banks. The list includes IndusInd Bank, Yes Bank, Axis Bank, ICICI, Suryoday Small Finance Bank, and Bandhan Bank. This move is aimed at raising investments by HDFC Asset Management Company (AMC), HDFC Ergo, and HDFC Life Insurance. The approval is valid for one year, and if HDFC Bank doesn't complete acquisition within that time frame, the approval will be revoked.
Key details
RBI approval subject to compliance with banking regulations
This approval from the RBI requires HDFC Bank to adhere to rules like the RBI's guidelines on acquisition, Foreign Exchange Management Act, and SEBI regulations. HDFC Bank must also ensure that its "aggregate holding" in IndusInd doesn't surpass 9.5% of the paid-up share capital or voting rights at any point. If the aggregate holding drops below 5%, the bank will need prior approval from the RBI to increase it to 5% or more.
Focus on efficiency
HDFC to acquire stakes after market rout post Q3 results
The RBI's approval to HDFC Bank Group to acquire stakes in other banks comes almost a couple of weeks after India's biggest private lender dropped 11% in two days, following disappointing Q3 results. The move to acquire stakes, led by HDFC Asset Management Company, HDFC Ergo, and HDFC Life Insurance, seeks to diversify HDFC's earnings and investments by coordinating itself more efficiently with the banking sector.