IndusInd Bank surges over 4?ter RBI committee proposes to increase the cap on promoter stake in private sector banks

IndusInd Bank surges over 4% after RBI committee proposes to increase the cap on promoter stake in private sector banks

• IndusInd Bank, IDFC First Bank, and J&K Bank stocks are soaring in trade today, led by the Reserve Bank of India (RBI) committee’s recommendation to increase the cap on promoters’ stake from 15% to 26%.
• The proposed change comes at a time when banks need the infusion of funds to deal with the outcome of the COVID-19 pandemic on borrowers.
• Billionaire Uday Kotak, promoter of Kotak Mahindra Bank, may now also be able to cement his position in courts where he was arguing to retain 26% of his shareholding.

IndusInd Bank’s shares are up over 4% after the Reserve Bank of India’s (RBI) Internal Working Group (IWG) recommended that the cap on promoters’ stake, in the long run, should be raised from the current level of 15% to 26%.

This brings grand tidings for the bank as its promoter, the Hinduja Group, has indicated its interest to increase shareholding. “We further estimate that, at the current market price, promoters could infuse up to ₹10,000 crores to increase their stake to 26% at the bank versus 14.85% currently,” said Motilal Oswal Financial Services in its report.

Other banks are also gaining ground, with Jammu & Kashmir Bank leading the pack, up by 13.3%, and IDFC First Bank also soaring by 6.4%.

Kotak Mahindra Bank’s share price continues to trade flat
While Kotak Mahindra Bank’s shares continue to trade flat, the increase in the cap on promoter stake is favourable for its promoter Uday Kotak as well. If accepted, this recommendation may cement the case he’s making to be allowed to retain a 26% stake in Kotak Mahindra Bank.

“We view this as a positive development across the banking sector, especially for the promoter-driven banks. This would help promoters have more ‘skin in the game’,” noted Nirmal Bang Securities.

According to analysts, increasing the cap on promoters’ sharing holding in banks also levels the playing field for other stakeholders that may have already reduced their shareholder as per RBI’s existing guidelines. The recommendation is also coming at a crucial time when banks need more capital to deal with the outcome of the COVID-19 pandemic after the stay on moratorium is lifted by the Supreme Court.

Source: BusinessInsider