In a significant development, the Reserve Bank of India (RBI) has granted approval to Life Insurance Corp. of India (LIC) to acquire a substantial stake of up to 9.99% in HDFC Bank, as announced by the country’s largest private lender on January 25.
HDFC Bank disclosed in a stock exchange filing that LIC has received guidance from the RBI to complete the acquisition within one year, specifically by January 24, 2025. Furthermore, LIC must ensure that its aggregate holding in the bank does not exceed the specified limit of 9.99% of the paid-up share capital or voting rights at any given time.
Currently holding a 5.19% stake in HDFC Bank, LIC aims to enhance its presence in the bank within the stipulated timeframe, according to the lender’s shareholding pattern as of December 31.
The RBI communicated this decision to LIC through a letter dated January 25, allowing LIC to acquire an aggregate holding of up to 9.99% of the paid-up share capital or voting rights of HDFC Bank Limited.
This development is anticipated to bring positive news for HDFC Bank’s shareholders, who recently witnessed a substantial sell-off, pushing the bank’s shares near 52-week lows following the announcement of the bank’s third-quarter earnings. Analysts attribute the sell-off to foreign investors reacting to a recent Sebi proposal related to foreign portfolio investors. However, the bank clarified that there is no evidence linking the selling by foreign portfolio investors to the Sebi guidelines.
HDFC Bank reported a net profit of Rs 16,372 crore for the October-December quarter of 2023-24, marking a 33.5% increase from the previous year. The net interest income (NII) also witnessed a significant rise of 23.9% to Rs 28,470 crore compared to the corresponding quarter of the previous fiscal.
Despite these positive financial indicators, the bank’s shares experienced a decline in the subsequent days, with investors expressing muted enthusiasm. The bank’s provisions rose to Rs 4,216 crore, a 50% increase during the quarter, including contingent provisions of around Rs 1,212 crore on account of investments in alternative investment funds.
While HDFC Bank’s gross non-performing assets (NPA) increased to 1.26%, up from 1.23% last year, the net NPA for the quarter stood at 0.31%, showcasing an improvement compared to the previous year.
Srinivasan Vaidyanathan, Chief Financial Officer of HDFC Bank, emphasized the bank’s historically positive trend in asset quality. However, the drop in share price suggests that investors may be adopting a cautious stance despite the bank’s strong financial performance.
On January 25, HDFC Bank’s shares closed at Rs 1435.30 apiece on the BSE, reflecting a 1.41% decrease from the previous close, while the benchmark equity index Sensex closed 0.51% down at 70,700.67 points. Investors now eagerly await the unfolding impact of LIC’s potential increased stake on HDFC Bank’s future trajectory.