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IDFC Bank, parent merger on cards

NBFCs gear up to apply for on-tap bank licences

Nupur Anand  |  Mumbai 

The draft guidelines on on-tap banking licences will help IDFC Bank, the country's newest bank, to merge with its parent to create a bigger entity. Rajiv Lall, founder, managing director and chief executive IDFC Bank, told Business Standard the easing of the rules would make it possible to integrate IDFC and IDFC Bank. Asked if the new rules could be applied retrospectively, Lall said they should be to create a level-playing field. New converting entities that do not have any other group entities do not need to have a non-operative financial holding company (NOFHC) structure. Also, individual promoters or the standalone promoting company are not required to take the NOFHC route, according to the guidelines issued by the Reserve Bank of India on Thursday. IDFC has a NOFHC for the demerged IDFC Bank and other subsidiaries, IDFC Mutual Fund, IDFC Alternatives, IDFC Infrastructure Fund and IDFC Securities. However, if the rules in the draft guidelines apply to existing banks, this structure can be collapsed, Lall said. Markets were enthused by such a possibility. The IDFC stock was up 11.69 per cent to Rs 46.80 on the BSE and the IDFC Bank stock rose 2.25 per cent. IDFC Bank, along with Bandhan Bank, was granted a licence for universal banking in 2014.

However, analysts said IDFC would have to sell some of its shareholding in the other subsidiaries before the merger. "The draft guidelines allow the bank to have a subsidiary or joint venture or associate, but that will mean some tweaking in shareholdings," said an analyst, requesting anonymity. IDFC Bank reported a 32 per cent quarter-on-quarter fall in its net profit to Rs 165 crore for the three months to March on a drop in total income and increased expenditure. IDFC reported dismal earnings with a consolidated net profit of Rs 130.45 crore for the March quarter. Standalone, IDFC reported a net profit of Rs 4.8 crore during the quarter. The banking regulator, in its effort to keep the banking sector at a comfortable distance from corporate houses, has limited their presence in the draft guidelines to not more than 10 per cent. The most likely candidates to be granted banking licences in future will be non-banking financial companies (NBFCs). Just a day after the draft guidelines were announced several NBFCs, including Muthoot Finance, IFCI and UAE Exchange were mulling applying for licences. "The initial draft looks promising and we are waiting for the final guidelines. We will definitely apply under this new scheme," said George Alexander Muthoot, managing director, Muthoot Finance. IFCI executives said it would be interested to apply because the cost of funds for NBFCs was high and capital adequacy norms were becoming stringent. Sanjiv Bajaj, managing director, Bajaj Finserv said as to qualify the lender must look at the total assets of the group and numbers for the latest financial year were not available yet, it would evaluate the option in the coming weeks. (With inputs from Abhijit Lele, Anup Roy & Abhineet Kumar)

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First Published: Sat, May 07 2016. 00:59 IST
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