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

The Reserve Bank of India (RBI) granted approval to HDFC Asset Management Company (HDFC AMC) on Wednesday, September 20, 2023, allowing the firm to acquire up to 9.5% stake each in Karur Vysya Bank and DCB Bank. The news led to a surge in the shares of both banks on Thursday, with Karur Vysya Bank shares climbing 2.6% and DCB Bank shares rising as much as 4.4%. Conversely, shares of HDFC AMC declined by as much as 1.4%.

The approval is contingent on compliance with several regulations and guidelines, including the Banking Regulation Act of 1949, RBI's Master Direction and Guidelines on Acquisition and Holding of Shares or Voting Rights in Banking Companies issued on January 16, 2023, provisions of the Foreign Exchange Management Act, 1999, regulations issued by Securities and Exchange Board of India, among others.

Both banks confirmed the RBI's approval in their regulatory filings stating that HDFC AMC must ensure that the aggregate holding in each bank does not exceed 9.5% of the paid-up share capital or voting rights at any point. If the aggregate holding falls below 5%, prior approval from RBI will be required to increase it to 5% or more.

HDFC AMC is the investment manager for HDFC Mutual Fund's schemes and as of June 2023, HDFC holds a controlling stake of 52.6% in the company. The asset management firm reported a significant growth in profit for the first quarter of FY24 with a leap of 52%, while its average assets under management increased to ₹4.86 lakh crore.

The RBI has stipulated a one-year period for HDFC AMC to acquire the shareholding in the banks from the date of approval. Failure to do so within the allotted timeframe will lead to the cancellation of the approval granted by the RBI.

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