RBI Greenlights LIC's Power Move, HDFC Bank Set for a Boost with 9.99 Percent Stake
LIC's Game-Changing Move, HDFC Bank's Stock Poised for Stability and Surge
26 January 2024
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Kunal Tyagi
RBI grants approval to LIC, allowing it to acquire an additional 4.8% stake in HDFC Bank, bringing its total stake to 9.99% by January 24, 2025.
LIC currently holds 5.19% in HDFC Bank, and the central bank advises completing the acquisition within a year, ensuring the aggregate holding does not exceed the specified limit.
Market analysts anticipate positive implications for HDFC Bank's stock, predicting stabilization and increased investor sentiment following LIC's increased stake approval.
In a significant development for the Indian financial sector, HDFC Bank announced on Thursday that the Reserve Bank of India (RBI) has granted approval to the Life Insurance Corporation of India (LIC) to acquire an additional 4.8% stake in the bank. This approval brings LIC's total stake in HDFC Bank to 9.99% by January 24, 2025. Currently, LIC holds a 5.19% stake in the country's largest private sector lender. The central bank has advised LIC to complete the acquisition within a year and ensure that its aggregate holding in the bank does not exceed the specified limit.
Under the regulatory framework set by the RBI, any entity seeking a substantial shareholding in a bank must obtain prior approval from the regulator. The term "major shareholding" is defined as an aggregate holding of 5% or more of the paid-up share capital or voting rights in a bank. In a similar move last year, the RBI granted approval to SBI Funds Management Ltd's proposal to acquire up to 9.99% stake in HDFC Bank.
The approval for LIC's increased stake is expected to have positive implications for HDFC Bank's stock, which experienced a 14.5% decline following disappointing Q3 results. Market analysts anticipate that the move will stabilize the stock and boost investor sentiment. Gaurav Dua of Sharekhan by BNP Paribas sees it as a "sentiment booster," while independent market analyst Ambareesh Baliga predicts a potential rally in the stock when the markets reopen.
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HDFC Bank's recent financial performance has been a mixed bag, with a 2.65% rise in consolidated net profit in the December quarter. However, challenges such as compressed Net Interest Margins (NIMs) and slowing deposit growth have impacted the stock. LIC's increased stake is seen as a strategic move to provide stability to the bank's share price and absorb selling pressure.
Despite the recent challenges, HDFC Bank's core net interest income showed growth, reaching ₹28,470 crore in the quarter. On the asset quality front, there was an improvement in the gross non-performing assets ratio. Investors will be closely watching how LIC's increased stake influences the bank's performance and stock dynamics in the coming quarters.
In conclusion, LIC's approval to raise its stake in HDFC Bank brings a ray of optimism for investors and the bank alike. The move is expected to have a stabilizing effect on the bank's share price, providing a potential floor and encouraging a positive market response. As the financial landscape evolves, stakeholders will keenly observe the impact of this development on HDFC Bank's strategic positioning and market performance.
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