Mumbai Updates on Foreign Investment in Banking
MUMBAI, Oct 14 – India’s central bank is considering the possibility of allowing Dubai’s Emirates NBD (ENBD.DU) to take up management rights for RBL Bank (RATB.NS). This move is part of a broader strategy aimed at attracting foreign investment while bolstering the country’s mid-sized banks, as informed sources have noted.
Reports suggested that Emirates NBD might acquire as much as a 25% stake in RBL Bank. However, under current Indian regulations, this would require the acquirer to extend an additional tender offer to private investors for another 26%, thus securing a 51% stake overall.
RBL Bank’s stock saw a boost of about 3.3% to Rs 299.6 on Tuesday, reaching its highest level since January 2024, following the hints of NBD’s potential investment.
In response to the rumors, RBL communicated with Indian stock exchanges on Tuesday, stating, “The Bank is on a growth trajectory and regularly seeks opportunities aimed at increasing shareholder value. However, such discussions do not warrant disclosure under the law.” They mentioned their compliance with Article 30 of the Listing Regulations.
NBD, however, did not provide comments when approached. Similarly, the Reserve Bank of India (RBI) did not respond to inquiries regarding the possible acquisition.
Currently, India permits up to 74% foreign investment in private banks but limits any single foreign institution’s shareholding to 15% without special approval from the RBI.
An informal nod from the RBI has been indicated, although formal approval would come after the proposal submission. The announcement of the deal could happen within the following week.
The RBI has shown a growing openness to foreign investments, recently approving Japan’s Sumitomo Mitsui Banking Corporation (SMBC) to acquire a 24.9% stake in Yes Bank (YESB.NS) in August. The central bank views these transactions as a means to enhance governance and stability in mid-sized banks.
One source commented, “Mid-sized banks want to strengthen themselves and promote growth. While they’re currently capitalized, they may struggle without robust shareholders.” This source, along with another, chose to remain anonymous given the private nature of the discussions.
As previously reported in June, the RBI was contemplating potential modifications to regulations that would increase foreign ownership in Indian banks due to rising interest from overseas buyers, aligning with India’s goal to attract foreign investment.
The central bank’s approach reflects an intention to replicate SMBC’s successful investment in Yes Bank, suggesting a broader strategy for enhancing mid-sized banks through foreign partnerships.
Emirates NBD, alongside other firms like Canada’s Fairfax Financial Holdings, was also interested in acquiring a 60% stake in government-owned IDBI Bank. It’s uncertain whether they will pursue that deal while exploring options in RBL.
According to analysts at ICICI Direct Research, the involvement of well-capitalized foreign entities like Emirates NBD could lead to improved governance, increased investor confidence, and a shift in market perceptions regarding mid-sized banks in India.
On Tuesday, RBL’s stock rose by 1.2%, totaling an 85% increase for the year. Still, this increase was somewhat overshadowed by the benchmark Nifty 50 (.NSEI), which fell by 8%, even as investors responded positively to the bank’s solid growth and the prospect of foreign investments.
