Mahindra and Mahindra (M&M) Ltd has evinced interest in acquiring as much as a 9.9% stake in private bank RBL Bank Ltd, after picking up a 3.53% stake in the latter a week ago.
“We may consider further investment subject to pricing, regulatory approvals, and required procedures. However, in no circumstance will it exceed 9.9%,” said the Mahindra group in a regulatory filing on Wednesday evening while commenting on the stake acquisition in RBL Bank, which has recently expressed its new strategy to shift from bulk to granular deposits model to expand the bank’s margins beyond 5%.
Mumbai-based Mahindra group, which has long been attempting to enter the country’s banking space, on Tuesday, said the group has acquired a 3.53% stake in RBL Bank as an investment at a cost of ₹417 crore.
Mahindra’s move took investors by surprise. A senior investment banker affiliated with a foreign bank termed the transaction a bold move.
M&M, possibly, is betting on the Reserve Bank of India (RBI) easing the rules on industrial houses owning banks. For now, the group is staying within RBI stipulated limits, according to a person close to the development.
On 5 April 2021, Anish Shah, the chief executive and managing director of M&M, in an interview with The Economic Times, said the conglomerate could apply for a banking licence. Before that, the group sought to secure a banking licence in 2013.
On Tuesday, a market buzz on Mahindra’s indirect entry into the banking space through RBL Bank stake purchase propelled the lender’s stock by 7.13% to ₹238.80 on BSE.
“The bank wishes to state that the holding of Mahindra & Mahindra Ltd as per the last beneficiary position as on 21 July 2023 as received from the depository (NSDL) is 3.53% of the total paid-up share capital of the bank,” said RBL Bank in an exchange filing.
“We being a listed company, for trading in the shares of the bank, there is no pre-approval required from the bank except for the fact that as per the master direction—RBI (Acquisition and Holding of Shares or Voting Rights in Banking Companies) Directions, 2023, any shareholder who wishes to acquire 5% or more of the shareholding of the bank is required to make an application to RBI to seek their prior approval for such acquisition,” said RBL Bank.
“No such application has been received by us till date,” added the bank’s filing.
BPEA EQT holds 9.99% of RBL Bank after buying the stake for ₹999 crore in October 2020. CDC Group Plc owns 5.53%, and Zerodha Broking Ltd holds 1.26%. The Mahindra group already runs a non-banking financial company (NBFC), Mahindra Finance.
“This (RBL purchase) could be a part of the group’s aspiration to merge Mahindra Finance with a bank at some point and benefit from the synergies, similar to what we have seen with Capital First and IDFC Bank,” said Asutosh Mishra, the head of research-institutional equity, Ashika Stock Broking.
RBL Bank, with a network of at least 520 branches across India, has expanded fast over the past three years and intends to add up to 80 more branches this year. During the June quarter, the private lender recorded a massive 43% jump in its net profit to ₹288 crore on higher interest income.
However, market experts expect a better performance from RBL Bank through a relook at the bank’s lending book mix. “The bank’s performance is average. Mostly, their earnings come from credit cards and the MFI (microfinance) business. On the core lending front, their income is from corporate banking, which may need to be reworked so that the bank’s interest income improves from retail and wholesale lending,” added Mishra.
The country’s 11th largest private lender has the scope to expand its net interest margin (NIM) to above 5% in 2023-24, leaning on more low-cost deposits and a favourable loan book mix, its managing director and CEO, R. Subramaniakumar, told Reuters on Monday. Subramaniakumar said the bank is gradually shifting from bulk to granular deposits, which will also help expand margins.
According to the norms, any stake purchase of 5% or more requires RBI approval. Also, the RBI rules restrict industrial houses to hold a maximum of 10% in a bank.
In 2021, RBI revised guidelines for private sector banks, allowing for 26% promoter ownership, but the regulator did not approve an internal working group’s recommendation to enable corporates to be promoters in any bank.
With Shah at the helm, capital allocation at M&M has been a top priority. The group exited loss-making and non-core businesses, including South Korean SUV maker SsangYong, US two-wheeler business GenZe, Gipps Aero (Australian planemaker) and First Choice Services business. In an interview on 19 December, Shah said: “We took lots of those hard calls. SsangYong was the first, followed by the US two-wheeler business GenZe and GippsAero (the aeroplane maker). With a return on equity target of 18%, M&M under Shah seems confident of stepping out to make a purchase, which may pay off in the future.
The delivery volumes on RBL Bank first spurted on 17 July, when almost 12 million shares worth ₹265 crore changed hands. On Wednesday, delivery stood at 10.6 million shares worth ₹247 crore, which is a nine-month high delivery volume. On both days, the number of shares traded on the cash market was abnormally high. On Wednesday, the number of shares traded was 45.5 million. Wednesday’s deliveries of the share stood at 1.77% of the total number of shares outstanding, while 17 July deliveries equalled almost 2% of the total outstanding shares of the bank at 599.6 million.
A stock enters an F&O ban when the number of outstanding shares held by traders exceeds the stipulated marketwide position limits on the share, as stipulated by the stock exchanges. It points to heavy activity in the cash as well as derivatives segments, with investors and traders anticipating an important event.