RBI allows SFBs to merge with holding cos; Ujjivan, Equitas Holdings up 20%

The Reserve Bank of India has allowed small finance banks (SFBs) and respective holding companies to apply for the Amalgamation scheme

Shares of Equitas Holdings, Ujjivan Financial Services, and IDFC rallied up to 20 per cent on the BSE in the intra-day trade on Monday after the Reserve Bank of India (RBI) allowed small finance banks (SFBs) and respective holding companies to apply for the Amalgamation scheme.

Among individual stocks, Equitas Holdings (at Rs 138.40) and Ujjivan Financial Services (at Rs 244.90) were locked in the 20 per cent upper circuit, while Equitas SFB surged 17 per cent at Rs 76.25, IDFC (up13 per cent to Rs 60.05), Ujjivan Small Finance Bank (up 11 per cent at Rs 33.80), and IDFC First Bank (up 2 per cent at Rs 54.70) on the BSE. In comparison, the S&P BSE Sensex was up 0.50 per cent at 52,649 points at 09:21 am.

Equitas Holdings, the promoter of Equitas Small Finance Bank (SFB), on Saturday said the bank has received the RBI's nod to apply for amalgamation of the promoter into itself. "RBI has also conveyed that any 'no-objection', if and when given on the Scheme of Amalgamation, would be without prejudice to the powers of RBI to initiate action, if any, for violation of any licensing guidelines or any terms and conditions of license, or any other applicable instruction," Equitas Holdings said in exchange filing on Saturday. READ ABOUT IT HERE

According to SFB Licensing Guidelines, a promoter of Small Finance Bank can exit or cease to be a promoter after the mandatory initial lock-in period of five years depending on the RBI’s regulatory and supervisory comfort and SEBI Regulations in this regard at that time.

"In case of Equitas Small Finance Bank, the said Initial Promoter Lock-in for the company expires on September 4, 2021. Hence, the bank had requested the RBI if a Scheme of Amalgamation of the company with the bank, resulting in exit of the promoter, can be submitted to RBI for approval, prior to the expiry of the said five years, to take effect after the Initial Promoter Lock-in expires," Equitas Holdings added.

Both Equitas/Ujjivan are going to complete five years of business operations. Though the SFBS are required to dilute promoter shareholding to less than 40 per cent within five years, this scheme of amalgamation will give an exit route to the promoters and collapse the holding company structure. Equitas and Ujjivan holding companies currently own 82 per cent and 83 per cent stake, respectively in underlying SFBs. Thus, Equitas and Ujjivan are required to dilute their stake in underlying bank by 4th Sep’21 and 31st Jan’22.

"Overall, the bank is focused on de-risking its portfolio by reducing the proportion of MFI business while Small Businesses loans and Vehicle finance are the growth drivers and thus estimate avg. loan growth at 22.5 per cent over FY21-23. We estimate ROA/ROE to improve to 1.8 per cent/17 per cent for FY23E," Motilal Oswal Securities said in company update.