After RBI notice, Bandhan Bank lists options to cut promoters' shareholding

On Friday, RBI withdrew the "general" permission given to Bandhan Bank to open branches and froze the remuneration of its MD and CEO for not reducing its promoter's stake

A day after the Reserve Bank of India (RBI) put curbs on Bandhan Bank for not complying with shareholding norms, the lender laid out several options, including inorganic growth, to reduce the promoters’ stake, in a conference call with analysts on Saturday. 

The bank would consider buyouts in the micro, small and medium enterprises (MSME), housing finance, and microfinance institution (MFI) space, said Chief Financial Officer Sunil Samdani. The bank, he said, would also look at entering the mutual fund and insurance business at the holding company level to reduce the promoters’ shareholding. 

However, according to the Securities and Exchange Board of India’s (Sebi’s) norms, the holding company cannot sell any shares for entering other businesses during the lock-in period. 

The bank told analysts that the target of reducing the shareholding from about 82 per cent to 40 per cent was stringent to fulfil in the near term and, hence, “showing progress would be appreciated”.

Another option that the bank will consider is a change in the holding company’s structure. Earlier, one of the proposals considered by Bandhan Bank to reduce the promoters’ shareholding was to merge Bandhan Financial Services, Bandhan Financial Holding, and Bandhan Bank. This would bring down the promoters’ holding to about 40 per cent. However, in general, the RBI has been in favour of a holding company for a new bank, as it protects depositors’ interests. 

On the option of secondary sale of shares, Samdani said that with the bank being adequately capitalised, any issuance would depend on fund requirements. 

Bandhan Bank’s capital adequacy ratio is in excess of 30 per cent, and it was comfortable at the 16-18 per cent level, he said. Further, any issuance, if needed, would be after March 2019, when one-year lock-in period expires for the bank.  

Also, the restriction on branch opening does not impact the bank’s growth plans, as it is already close to its target of opening 1,000 branches by March 2019.  The bank had 937 branches at the end of August.  

Licensing norms require a bank to bring down the promoter holding to 40 per cent within three years of starting operations. Bandhan Bank commenced operations on August 23, 2015.

Bandhan Financial Holdings Limited (BFHL) acts as the promoting company for Bandhan Bank, and holds 82.28 per cent in the bank. The bank went for an initial public offering (IPO) in March this year, after which the promoter holding came down from 89.62 per cent. According to the Sebi rules, promoters have a mandatory one-year lock-in period after the IPO in which they cannot sell their shares. 

On Friday, the RBI withdrew the “general” permission given to Bandhan Bank to open branches and froze the remuneration of its managing director (MD) and chief executive officer (CEO), after it failed to comply with the norm of bringing down promoters’ shareholding to 40 per cent by the deadline of August 23. However, the bank can open branches with the approval of the regulator.

Options vetted by Bandhan

• Acquisition in MSME, HFC, MFI space-
• Engage in dialogue with RBI for tweaking the holding company's structure
• Enter the insurance, mutual fund business through holding company