Won't invest in RBL further unless it sees 'compelling value': M&M

M&M Board had approved a stake buy of up to 4.5 per cent in RBL Bank

Mahindra and Mahindra (M&M) on Friday said that it does not expect to invest more in RBL Bank unless it sees ‘compelling strategic value’ beyond the 3.5 per cent stake that it acquired recently for Rs 417 crore.

The company said the investment in the private sector lender was made with a long-term (7-10 years) horizon in mind.

On July 26, M&M acquired a 3.53 per cent stake in RBL Bank and is now the third-largest shareholder in the bank. M&M shares dropped 6.4 per cent — most in over three years — on July 27. The market did not approve of the move as it expects the company to invest in core businesses.

“The primary purpose is to understand banking, which will enable us to enhance the value of our financial services business,” said Anish Shah, chief executive officer (CEO) and managing director (MD) of M&M.

The company said a statement on Friday that “We have mentioned that we may consider increasing our stake to 9.9 per cent. And, we do not expect to invest more unless we see compelling strategic value at some point in the future.”

M&M’s board had approved a stake buy of up to 4.5 per cent in RBL Bank.

The Reserve Bank of India’s (RBI’s) norms cap non-promoter shareholding, (except supranational institutions, public sector undertakings, or government) either natural persons or non-financial institutions, in a bank at 10 per cent. 

However, non-promoters need prior approval from the regulator to increase their stake to 5 per cent or more.

Moreover, business houses that have more than 40 per cent of their income or revenue from non-financial activities are not allowed to become a bank.

Explaining the rationale behind the capital allocation, Shah told reporters in Mumbai that M&M saw an opportunity with an attractive valuation at less than one times the price-to-book value for a ‘very solid bank’ with a strong management team.

Mahindra and Mahindra Financial Services (MMFSL), the group’s non-banking financial company (NBFC), is valued at around Rs 40,000 crore.

M&M said that it will explore the potential for synergies as well.

However, M&M has chosen to not invest through MMFSL. Shah added that MMFSL has an ‘aggressive growth plan’ now and it needs capital to grow its business over the next three or four years. Therefore, the investment was done by M&M and not MMFSL.

RBL Bank came under regulatory glare about a year-and-a-half ago after the then CEO and MD Vishwavir Ahuja’s term was not extended. Ahuja was credited for turning a sleepy Kolhapur-based Ratnakar Bank into a new-age, tech-driven private sector bank. Ahuja stepped down in December 2021 and Rajeev Ahuja was appointed interim CEO.

In June 2022, R Subramaniakumar, a veteran banker, took charge as its MD and CEO. Subramaniakumar was the MD & CEO of Indian Overseas Bank earlier.

Subramaniakumar steadied the ship as the bank went on to deliver strong profitability.

During the first quarter of FY24, RBL Bank reported a 43 per cent growth in its net profit at Rs 288 crore. The loan book grew 21 per cent year-on-year to Rs 73,987 crore as on June 30. Deposits rose by 8 per cent to Rs 85,636 crore.

The Timeline
 

On July 26, Mahindra & Mahindra (M&M) announced it acquired a 3.53 % stake in RBL Bank as an investment for Rs 417 crore

M&M shares dropped 6.4 %—most in over three years – on July 27

M&M Board approved a stake buy of up to 4.5 % in RBL Bank