Amid regulatory overhaul, Axis Bank awaits RBI nod on Axis Finance's future

Options under consideration include absorbing non-banking financial company (NBFC) into bank, pursuing a public listing, or reducing its shareholding in NBFC below a specified threshold

Axis Bank, India’s third-largest private-sector lender, is awaiting clarifications from the Reserve Bank of India (RBI) to decide the future of its wholly owned subsidiary, Axis Finance, following the regulator’s proposal that only one entity within a bank group can undertake a specific type of permissible business.

 

Options under consideration include absorbing the non-banking financial company (NBFC) into the bank, pursuing a public listing, or reducing its shareholding in the NBFC below a specified threshold.

 

“…the signal from the regulator was that they would not like Axis Bank to continue to just infuse equity into the NBFC. So, we had said there might come a stage where we might have to induct another shareholder. But let us see how much time we have,” said Amitabh Chaudhry, managing director and chief executive officer of Axis Bank, told Business Standard.

 

"Then we will take a call on whether we absorb it completely, go for an initial public offering (IPO), or adopt a glide path to reduce our shareholding below a certain level," Chaudhry said.

 

According to the RBI’s draft circular released in October, multiple entities within a bank group cannot undertake the same business or hold/acquire the same category of licence/authorisation or registration from any financial sector regulator. It also stated that overlapping lending activities between a bank and its subsidiaries would not be allowed.

 

Feedback on the draft was due by November 20, and responses have been submitted by banks, both individually and through the Indian Banks Association (IBA).

 

Analysts said these proposed norms could impact major banks, such as Axis Bank, HDFC Bank, Kotak Mahindra Bank, and Federal Bank, which may have overlapping business subsidiaries. For instance, Axis Bank owns Axis Finance, ICICI Bank has ICICI Home Finance, Kotak Mahindra Bank operates Kotak Mahindra Prime and Kotak Mahindra Investments, and Federal Bank owns Fedbank Financial Services.

 

HDFC Bank’s subsidiary, HDB Financial Services, has filed a draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (Sebi) for an IPO of ~12,500 crore. Of this, ~10,000 crore will come through an offer for sale (OFS) by HDFC Bank, which holds a 94.36 per cent stake, while the remaining ~2,500 crore will be raised through a fresh issue.

 

“Let’s see what the final guidelines look like, because right now, there are a lot of clarifications all of us have sought. Some points in the draft circular the regulator has been talking about for quite some time,” Chaudhry said.

 

For example, he said, the regulator is clear that they are uncomfortable with the bank and their subsidiary NBFC doing the same business. “We will wait and see what happens there,” Chaudhry said.

 

Axis Finance offers customised financial solutions across wholesale, retail, and MSME segments, from corporate loans to real estate financing, loans against property, home loans, personal loans, especially in non-metro markets.

 

In the first half of FY25, Axis Finance reported a 24 per cent year-on-year (Y-o-Y) rise in its net profit at ~327. Its total assets grew 30 per cent Y-o-Y, driven by 39 per cent growth in its retail loan book, which now constitutes 47 per cent of total loans. In the corporate segment, the focus continues to be on well-rated borrowers and cash flow-backed transactions. Axis Finance’s capital adequacy ratio stood at 19.89 per cent at the end of the first half of FY25.