Axis Bank seeks RBI nod to retain maximum possible equity in subsidiary

The bank will look to dilute a minimal stake in the wholly owned NBFC now that norms on overlapping business have been relaxed by the central bank

Axis Bank, India’s third-largest private-sector lender, has approached the Reserve Bank of India (RBI) seeking permission to retain the maximum possible equity in its wholly owned subsidiary, Axis Finance, and dilute only a minimal stake. This follows the central bank’s revised guidelines, which allow multiple entities within a banking group to undertake the same line of business, subject to board approval and adequate rationale and justification, sources aware of the development said. 

In October 2024, the RBI, through its ‘forms of business’ circular, proposed that only a single entity within a bank group could undertake a particular form of permissible business. Later, the central bank informed Axis Bank that it could not infuse extra capital into Axis Finance to fund its growth. 

As a result, the bank sought to bring in an investor by diluting a portion of its stake in the non-banking financial company (NBFC) to raise capital for expansion and appointed Morgan Stanley to find investors. 

With the revised guidelines removing the clause that barred banks and their subsidiary NBFCs from operating in the same line of business, Axis Bank can now potentially infuse equity into the NBFC, subject to RBI approval. 

Accordingly, the bank has approached the RBI with a proposal to retain as much equity as possible in Axis Finance, given its strong performance, while diluting a small stake in light of ongoing investor discussions, sources said.  Axis Bank did not respond to an email seeking comment. 

“RBI asked Axis Bank to provide its rationale for retaining the maximum possible equity in Axis Finance, which the bank has submitted. The RBI said it will examine the proposal and respond. The bank is now awaiting the regulator’s decision to determine its next steps,” a source said. 

If the RBI approves the plan, the bank will proceed with a stake dilution, though not to the extent originally envisaged, the source added, observing that investors are already lined up. 

In January, during its earnings call, Axis Bank said it was exploring all options to infuse capital into Axis Finance, including a stake sale to strategic investors. “We will continue to ensure that capital is not a constraint for the business. We are exploring all options to infuse capital, based on regulatory guidance and recent changes in guidelines,” the bank’s management said. “We are also evaluating a stake sale as one of the options. That option is not off the table,” they added. 

Meanwhile, the bank’s management has guided that Axis Finance is expected to become an upper-layer NBFC by 2026-27, after which the bank will look to list the company. Under RBI norms, an NBFC classified as upper-layer must list its shares on a stock exchange within three years of being identified as such. 

Axis Finance offers customised financial solutions across retail, micro, small and medium enterprise (MSME), and wholesale segments. Its wholesale lending portfolio includes corporate loans, collateralised lending, and real estate financing. The retail segment covers loans against property, home loans, personal loans, and business loans. The MSME vertical focuses on small-ticket corporate lending, largely backed by collateral, with a strong presence in non-metro markets. 

As of the end of the third quarter (October–December) of 2025-26, Axis Finance’s assets under management stood at nearly ₹45,000 crore. For the nine months ended in December, the company reported a net profit of ₹571 crore and a gross non-performing asset ratio of 0.95 per cent. 

Case file

• RBI had proposed that a single entity within a bank group could undertake a particular form of permissible business
• With the revised guidelines, Axis Bank can now potentially infuse equity into Axis Finance
• After RBI approval, the bank will proceed with a stake dilution less than originally planned
• Axis Finance is expected to become an upper-layer NBFC by 2026-27