SBI Mutual Fund Receives Approval to Acquire 9.99% Stake in IndusInd Bank

The Reserve Bank of India (RBI) granted its approval on October 11 for SBI Mutual Fund (SBI MF), the mutual funds arm of the State Bank of India, to acquire a 9.99% stake in the private lender, IndusInd Bank. This move was disclosed through a regulatory filing on October 11. This enables SBI MF to not only acquire a 9.99% share in IndusInd Bank but also an equivalent percentage of voting rights. The RBI has advised SBI MF to complete this major shareholding acquisition within a year, by October 10, 2024. RBI further instructed SBI MF to ensure that their overall holding in IndusInd Bank does not surpass 9.99% of the paid-up share capital or the voting rights.

Historical Context & Financial Performance

SBI MF follows a similar approval given by the RBI earlier in May. In that instance, a joint venture between State Bank of India and France's AMUNDI was granted permission to acquire a 9.99% stake in HDFC Bank and was encouraged to do so within six months.

Notably, for the first quarter of the fiscal year 2023-24, IndusInd Bank reported strong financial results, net profit surged to ₹2,124 crore, reflecting a 32% increase compared to the ₹1,603.29 crore reported in the previous quarter of June 2022. Furthermore, the bank's net interest income grew to ₹4,867.11 crore, which is a 17.98% increase compared to ₹4,125.20 crore reported in the same period of the previous year.

This acquisition by SBI Mutual Fund signifies an important development in the banking and financial sector and could have far-reaching implications in the future. It will be interesting to observe how this investment contributes to both SBI MF's portfolio and IndusInd Bank's growth and stability.

Stock Performance

IndusInd Bank's stock performance has been a mixed bag over various timeframes. In the short term, the stock has remained relatively stable. However, when we extend our analysis to the past six months, there is a more positive story to tell, stock showing impressive gains of nearly 29%. In a one-year time frame, investors have seen a 20% return, which is reasonably good. On the flip side, when we look at the longer-term picture of the last five years, the stock has given a negative return of 13%.

Looks, like many investors are waiting for a better opportunity to exit or for the stock to reach a break-even point. IndusInd Bank shares touched a high of ₹1767 in March 2019, but the stock has struggled to regain its previous momentum. Even though it has recovered from the lows of ₹313 seen during the COVID-19 crash, it has not yet reached its pre-pandemic high. Currently trading at 1423, the stock is down by approximately 19% from its peak of ₹1767.

Promoter Holding

As of June 2023, the promoters hold approximately 16.49%, and a significant 45.48% of these shares are pledged as collateral. This situation has remained relatively stable over the past few quarters, as the promoter ownership and pledge percentages have seen minimal changes. In March, December, and September of 2022, the promoter ownership was around 16.51%, with 45.48% of their shares being pledged. This data suggests that the promoters have been consistently holding their ownership stake while using a substantial portion of their shares as collateral for loans or other financial obligations.