RBI approves HDFC AMC's acquisition of up to 9.5% stake in Karur Vysya and DCB Banks

The Reserve Bank of India (RBI) has given its approval to HDFC Asset Management Company (HDFC AMC) for the acquisition of up to 9.5% stake in both DCB Bank and Karur Vysya Bank. This approval, granted on September 20, 2023, remains valid for one year from the date of approval, as stated by both lenders in their BSE filings.

On Thursday, Karur Vysya Bank revealed to stock exchanges that the approval had been granted with reference to an application made by HDFC AMC to RBI. The bank also noted that HDFC AMC must ensure that its aggregate holding in the bank does not exceed 9.5% of the paid-up share capital or voting rights at any given time. If the aggregate holding falls below 5%, prior RBI approval will be required to increase it to 5% or more.

Karur Vysya Bank has seen a surge in its stock price recently, with shares soaring 1.23% in morning trade on Thursday. The current market price stands at Rs 135.40 ($1 = Rs 83.13) per share, following a rally of 38% over the last six months and a soar of 54% over the past year.

Notably, Karur Vysya Bank is backed by seasoned investors such as Ashish Dhawan, Mukul Agrawal and the Jhunjhunwala family. As of the end of June quarter, Jhunjhunwala held a 4.50% stake, while Dhawan (1.3%) and Agrawal (1.25%) also held over one per cent stakes in the bank.

Meanwhile, DCB Bank shares also experienced a significant rise, gaining 4.11% on BSE. The current market price of DCB Bank Limited is Rs 129.15 per share on BSE, following a gain of 9% in the last week.

In contrast, HDFC AMC shares declined 0.25% on BSE on Thursday, despite having witnessed a spurt in volume by more than 1.43 times and having soared 52% in the last six months.

The approval for these stake acquisitions comes amidst a trend of similar investments in the banking sector. Recently, Mahindra&Mahindra purchased a 3.53% stake in RBL Bank for Rs 417 crore (Rs 1 crore = $120,289), stating that it may consider further investment subject to pricing, regulatory approvals and required procedures, but will not exceed 9.95%.

The RBI's approval for HDFC AMC's acquisitions is subject to compliance with various regulations and guidelines, including the Banking Regulation Act, 1949, RBI's Master Direction and Guidelines on Acquisition and Holding of Shares or Voting Rights in Banking Companies dated January 16, 2023 (as amended from time to time), provisions of the Foreign Exchange Management Act, 1999, regulations issued by Securities and Exchange Board of India, and other applicable guidelines and statutes.

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