By Nityanjali Bulsu
HDFC Bank, India’s largest private bank, received approval from the Reserve Bank of India (RBI) to allow its group to take up to 9.5 percent stake in IndusInd Bank. This move has drawn great attention amidst the ongoing scrutiny of the bank’s governance and financial performance.
The approval was granted by RBI through a letter on December 15th, Monday. This approval letter is said to be valid for 1 year. The approval allows HDFC Bank, its subsidiaries, and all its group companies to collectively hold up to 9.5% of IndusInd Bank’s share capital, or, as it is called, voting rights. HDFC Bank has further clarified that it does not plan to invest directly in IndusInd Bank, but that the investments by the group companies are part of their routine business activities.
The bank said it had approached the RBI after the combined holdings of its group entities were expected to breach the earlier 5 percent threshold. Under RBI norms, “aggregate holding” includes stakes held by mutual funds, insurance firms and other promoter-linked entities under common management or control.
IndusInd Bank has received regulatory approval at a challenging time. The bank recently reported its biggest quarterly loss ever, amounting to $230 million due to problems with accounting and governance. These issues led to the departure of former CEO Sumant Kathpalia and Deputy CEO Arun Khurana earlier this year. Investors criticised the bank for delays in disclosures and lack of board oversight.
Market reaction to the announcement was muted. The stock market and share market were also at a loss in the case of HDFC and IndusInd Bank; they slipped and fell marginally. This has led to an extension to their ongoing underperformance this year.
The RBI approval is subject to standard reporting and compliance conditions, and any increase beyond the approved limit would require fresh regulatory clearance. Both stocks are expected to remain under close watch as investors assess the implications of the move.