RBI Allows HDFC To Hold Only 9.9% In Bandhan Bank

The Reserve Bank of India didn’t allow Housing Development Finance Corporation Ltd. to own more than the regulatory limit in Bandhan Bank Ltd.

India’s largest mortgage lender, which has agreed to merge its low-cost arm Gruh Finance Pvt. Ltd. with Bandhan Bank, can hold 9.9 percent in the bank, according to its exchange filing. That’s the maximum a non-banking finance company can own in a private bank. HDFC had sought approval for 14.96 percent.

“The present merger scheme requires HDFC Ltd to hold 14.96 percent in the merged entity. This would mean that HDFC Ltd would have to pare its stake upon the effective date of the scheme,” said JM Financial in a note issued on Friday evening.

HDFC agreed to merge Gruh Finance with microlender-turned-universal bank in a share-swap deal. Shareholders of Gruh Finance will get 568 shares of Bandhan Bank for every 1,000 held. HDFC owns 57.83 percent in Gruh Finance.

The deal, announced in January, came after the RBI penalised promoters of Bandhan Bank for not being able to reduce their stake below the regulatory cap. Promoters hold 82.28 percent in the private bank, which is expected to come down to around 61 percent after the merger.

At the time of announcement, Bandhan Bank had said the deal was part of a broader plan to diversify its loan book. The merger with Gruh Finance would bring down loans to the unsecured segment from 86 percent to 50 percent of total advances, Chandra Shekhar Ghosh, managing director and chief executive officer at Bandhan Bank, had said.

HDFC said in its filing that the deal is still pending other statutory approvals.