Differentiated bank holdco norms on cards; Bandhan, IDFC First may benefit

The Reserve Bank of India (RBI) may consider adopting a differentiated strategy to implement a holding company structure for banks.

Lenders that do not have subsidiaries in insurance, asset management, and broking may be exempt from having a non-operative financial holding company (NOFHC).

In the case of those having operations in other non-lending domains, however, the banking regulator may insist on an NOFHC to anchor these subsidiaries.

Among mainstream or universal banks, IDFC First and Bandhan received their banking licences in 2014 and were mandated by the licensing norms to have an NOFHC. IDFC Financial Holding Company (wholly-owned subsidiary of IDFC) and Bandhan
Financial Holdings are the respective NOFHCs.

The norms mandate the NOFHCs to reduce their stake in banks to 40 per cent within five years of commencement. Both banks will complete five years in October. While IFDC First’s holdco owns 40 per cent in the bank, Bandhan’s holdco is yet to comply,
with 60.95 per cent stake at present.

Discussions are on to find an equitable way of reducing promoters’ stake in the banks. “Since these banks do not have any other non-lending subsidiary, and have a relatively simple shareholding structure even within the NOFHC, they may be able to collapse the holding company with the bank,” said a person aware of the development.

Consequently, IDFC Financial Holding Company and Bandhan Financial Holdings may be merged with their respective banks. “The final approval is likely by September,” said a source. Both banks did not comment on the development.

Small finance banks such as Equitas, Ujjivan, and Jana were also set up in accordance with the NOFHC structure, though the format wasn’t mandatory. Collapsing the NOFHC with the bank ahead of a public issue, which would be due upon achieving Rs 500 crore in net worth, is not possible in their case. “SFBs need to complete five years of operations before they approach the regulator for relaxation,” said a top executive of an SFB.

In case of banks like ICICI Bank and Axis Bank, there may be no relaxation as they operate across various non-lending segments.