Mumbai: The largest-ever foreign direct investment and equity fundraising in the Indian banking industry will take place when Emirates NBD pays $3 billion, or ₹26,850 crore, to purchase a controlling interest in RBL Bank Limited. The announcement was made just five months after the RBI gave the Dubai bank in-principle approval to create a fully-owned subsidiary in India.
According to a joint release from the company, it will also be the first time a foreign bank has acquired the majority stake in a “profitable Indian bank” and the largest preferential issuance fundraising campaign by a publicly traded corporation. It further stated that the proposed deal demonstrates ENBD’s sustained faith in India’s rapidly expanding banking industry and its long-term dedication to the Indian market.
In the statement, RBL Bank managing director and CEO R Subramaniakumar stated, “This partnership secures a robust and globally respected anchor shareholder, providing a strong capital base for our future.”
Voting rights cap
On October 13, Mint revealed that negotiations were underway for Dubai’s Emirates NBD Bank PJSC to pay more than $1 billion to acquire a majority share in Indian private lender RBL Bank Ltd. According to the newspaper, which cited two persons with knowledge of the situation, the RBI is expected to cap the voting rights of the Dubai entity at 26% even if it approves the Emirates-RBL agreement because of “regulatory requirements.”
No bank shareholder with more than 26% of the vote may utilise that power, according to a January 2023 RBI circular. Typically, financial organisations can purchase up to 15% of a bank, while non-promoters, such as individuals or non-financial institutions, can purchase up to 10%. But according to the aforementioned circular, the RBI “may also permit higher shareholding on a case-to-case basis.”
In July, Sanjay Malhotra, the governor of the Reserve Bank of India, told CNBC TV18 that the central bank had not yet received any cases involving foreign banks seeking to acquire 26% of Indian banks. The foreign banks are permitted up to 74% in accordance with the FDI policy. “It is definitely possible for foreign banks to own a 26 percent stake in an Indian bank,” he told the broadcaster.
Aside from the recent acquisition of a 24% share in Yes Bank by Japan’s Sumitomo Group, there have been relatively few instances of foreign banks purchasing Indian institutions. Before that, in November 2020, the RBI had permitted the local branch of DBS Bank, Singapore’s biggest lender, to acquire the faltering Lakshmi Vilas Bank.
Details of the deal
According to Sebi regulations, the planned investment will be made through a preferential issue of up to 60% of the bank’s share capital, together with a mandatory open offer for the purchase of up to 26% of the company from RBL Bank’s public shareholders. The investor from the UAE would receive 95,90,45,636 shares from the bank at a price of ₹280, which is less than the NSE’s closing price of ₹299.70 on Friday.
As mandated by the RBI, Emirates NBD’s India branches will combine with the local lender’s following the proposed preferential issuance.
“The deal combines RBL Bank’s well-established presence and wide distribution throughout India with ENBD’s robust capital base and regional franchise,” the press statement stated. RBL Bank will be able to deepen its deposit franchise and grow its branch network thanks to the capital infusion, which will also improve its Tier-1 capital ratio and strengthen its balance sheet.
Through a reputable company like RBL Bank, ENBD would have a stronger foothold in India, which would further expand its offerings to clients in the MENATSA area. We plan to use our network to promote Indian companies, commerce, projects, and other possibilities in the region,” Emirates NBD Group CEO Shayne Nelson was cited as saying.
According to RBL Bank Chairman Chandan Sinha, RBL Bank would be able to benefit from Emirates NBD’s solid credit rating as well as its existing connections with banks, financial institutions, and businesses throughout India.