IndusInd Bank stock price surges on RBI nod for Mutual Fund business

The increase in stock price follows the RBI approval for the bank to establish a wholly owned subsidiary dedicated to asset management and mutual funds, with additional equity capital infusion.

IndusInd Bank in focus: Shares of private lender IndusInd Bank rose up to 1.87 per cent on Tuesday, August 20, 2024, hitting an intraday peak of Rs 1,373 per share. 

The increase in stock price follows the Reserve Bank of India's (RBI) approval for the bank to establish a wholly owned subsidiary dedicated to asset management and mutual funds, with additional equity capital infusion.

In an exchange filing, IndusInd Bank said, “This is to inform that the Reserve Bank of India vide letter dated August 19, 2024, has accorded its approval to the Bank for setting up a wholly owned subsidiary to undertake asset management business of Mutual Fund along with infusing equity capital in the said asset management subsidiary, subject to the additional conditions as set out in the said letter.”

According to Nomura, this development is major for IndusInd Bank, which previously lacked direct involvement in para-banking subsidiaries. Nomura noted that, until now, the bank had primarily functioned as a distributor of mutual fund products, generating only Rs 50 lakh in fees during FY24 from mutual fund distribution, portfolio management services, and other alternative investments. This is a modest figure compared to the Rs 280 crore to Rs 540 crore earned by other major banks such as Kotak Mahindra Bank, ICICI Bank, and Axis Bank from similar activities.

The RBI’s approval is interesting because, historically, the central bank has been conservative in allowing banks to expand into non-banking and para-banking sectors, except for legacy operations, Nomura said. 

Recent regulatory changes, including relaxed rules for banks like HDFC Bank and ICICI Bank to increase their stakes in insurance subsidiaries, analysts believe, indicate a potential shift. However, the approval for a new asset management subsidiary represents a novel move by the RBI.

Nomura suggests that while this development is a positive step for IndusInd Bank, its immediate impact on the bank's valuation is expected to be minimal. 

Thus, the brokerage maintains a ‘Neutral’ rating with an unchanged target price of Rs 1,580 per share, noting that it will be important to see if this precedent leads to broader regulatory relaxations for other para-banking businesses in the future.

At 10:38 AM, shares of IndusInd Bank were trading 1.96 per cent higher at Rs 1,374.15 per share. In comparison, BSE Sensex was trading 0.56 per cent higher at 80,871.44 levels.