Axis Bank seeks RBI leeway in Enam deal

Axis Bank has requested the Reserve Bank of India (RBI) for certain dispensations regarding its deal with Enam Securities.

RBI had given its in-principle approval for the deal but it also specified some conditions that are expected to increase the tax burden for Axis bank. As a result, the bank wrote to RBI, seeking “certain modifications” in the specified terms and conditions.

The terms and conditions specified by RBI included a revised scheme of accounting and a change in the eventual structure of the business proposed to be acquired.

According to sources, the bank was exploring different options to revise the deal structure without attracting an additional tax burden.

“Upon examining the implications of these conditions, the bank has sought certain modifications to the approval granted by RBI. Pending the receipt of the necessary approvals, no effect of the acquisition has been given to the financials for the quarter ended June 30, 2011,” the bank said in a statement.

Somnath Sengupta, executive director and chief financial officer, Axis Bank, declined to give further details on this issue. “I cannot give any more details than what is mentioned in the press release. RBI had stipulated some changes and we want to make some modifications there. It is difficult to put a timeline and predict the outcome. We hope things would happen sooner rather than later,” he said.

Sengupta clarified the delay in closing the deal had so far not affected the businesses of either Axis Bank or Enam Securities.

The country’s third-largest private sector bank has already missed its first cut-off date to close the transaction. In November, 2010 while announcing the deal, Axis Bank's managing director and chief executive officer Shikha Sharma said the transaction was likely to be completed in four to six months.

Earlier, RBI had stalled Axis Bank’s plan to induct Vallabh Bhansali, co-founder and chairman of Enam, as independent director on the bank's board.

Axis Bank had said Enam would de-merge its equities and investment banking businesses into a wholly-owned subsidiary of Axis Bank. The bank would also de-merge its investment banking business into this subsidiary.

Shareholders of Enam would get 5.7 shares of Axis Bank for every share held in the broking company. In other words, Enam shareholders would get 3.3 per cent stake in the bank on enlarged capital.