In a significant development for HDFC Bank, the Reserve Bank of India (RBI) has granted approval to Life Insurance Corporation of India (LIC) to increase its stake in the bank. This move has already impacted HDFC Bank’s share prices positively, with a 2% gain after the announcement. LIC, holding a 5.19% stake at the end of Q3FY24, can now acquire an additional 4.8% stake, bringing its total potential ownership to 9.99%. This decision is expected to boost investor sentiment and potentially contribute to the bank’s recovery.
LIC’s Approval and Expansion Plans:
At the close of Q3FY24, LIC held 340,921,284 shares, equivalent to a 5.19% stake in HDFC Bank. The estimated value of this stake, based on the closing price at that time, stood at ₹48,836 crore. With the RBI’s approval, LIC is now authorized to acquire an additional 4.8% stake, taking its potential ownership to the maximum limit of 9.99%. Importantly, there is no penalty imposed if LIC chooses not to increase its stake to the maximum allowable limit. The RBI has advised LIC to complete the acquisition within a year, by January 24, 2025.
Market Reaction and Expert Opinions:
Following the approval news, HDFC Bank shares saw a nearly 2% rise to ₹1,462.80 apiece in early trade on Monday. Analysts view LIC’s increased stake as a positive development for HDFC Bank and the overall market. Mohit Gulati, CIO & Managing Partner of the ITI Growth Opportunities Fund, described the approval as fantastic news for HDFC stockholders. Despite recent challenges, HDFC Bank has stood the test of time, and LIC’s increased stake is seen as a sentimental booster.
Arun Kejriwal, founder of Kejriwal Research and Investment Services, emphasized that since the permission is valid for a year, immediate expectations of LIC purchasing HDFC Bank shares should be tempered. This timeframe allows for a more measured and strategic approach to stake acquisition.
Impact of Q3FY24 Results on HDFC Bank:
HDFC Bank faced pressure on its share prices after releasing Q3FY24 results, which fell below street estimates in deposit and liquidity metrics. The net interest margin (NIM) on total assets dropped to 3.4% from 3.65% in the previous quarter (Q3 FY23). The rising cost of funds and tight liquidity were identified as factors impacting NIMs. Notably, before its merger with Housing Development Finance Corp. (HDFC), the bank’s NIM stood above 4%. The decline in HDFC Bank’s stock value between January 16 and January 25 amounted to approximately 14.5%, influencing overall market performance due to its significant weightage in both the Nifty 50 and Nifty Bank.
Expert Perspectives on HDFC Bank’s Future:
Mohit Gulati sees LIC’s increased stake as a positive development that could provide a boost to investor sentiment. Despite the recent challenges faced by HDFC Bank, he believes the downside for the stock is limited, potentially leading to a rebound.
Arun Kejriwal highlights the one-year timeframe for LIC’s stake acquisition and cautions against immediate expectations. This allows for strategic planning and execution, providing a more stable path for both HDFC Bank and LIC.
The RBI’s approval for LIC to expand its stake in HDFC Bank presents a positive outlook for the bank’s future. While challenges in Q3FY24 results impacted the stock, experts remain optimistic about the potential recovery, with LIC’s increased stake considered a significant driver of positive sentiment. Investors are advised to consider these factors and seek advice from certified experts before making any investment decisions.
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