The Reserve Bank of India (RBI) has permitted the Life Insurance Corp. of India (LIC) to purchase up to a 9.99% stake in HDFC Bank Ltd., the bank announced on Thursday.

The largest private sector lender in the nation, HDFC Bank, is presently owned by LIC to the tune of 5.19%. HDFC Bank stated in a stock exchange filing that LIC has been directed by RBI to purchase the extra HDFC Bank shares within a year.

Furthermore, LIC is required to make sure that, at all times, the total amount of its ownership in the bank does not surpass 9.99% of the bank’s paid-up share capital or voting rights. Subject to LIC’s adherence to the terms of the Foreign Exchange Management Act of 1999, the RBI’s Master Direction and Guidelines on Acquisition and Holding of Shares or Voting Rights in Banking Companies, the Banking Regulation Act of 1949, and the Securities and Exchange Board of India’s regulations, the central bank approved LIC’s application on Thursday.

Any organization wishing to acquire bank shares that might result in a significant ownership stake is required by RBI regulations to obtain the regulator’s prior clearance. A major shareholding is any aggregate holding of five percent or more of a bank’s paid-up share capital or voting rights.

The asset management firm SBI Funds Management Ltd.’s (SBIFML) plan to purchase up to a 9.99% stake in HDFC Bank was approved by the RBI in May of last year.

Up to 5% of a bank can be held by designated, law-abiding companies without RBI approval. Since LIC’s post-merger investment surpassed 5%, it sought regulatory clearance before increasing its stake further.

The action might give the company some stability after its Q3 results on January 16th, when the market saw NIMs contract more than anticipated and deposit growth decelerate. Due to this, the stock fell 14.5% on January 16 and closed at ₹1434.90 on Thursday. This has affected the Nifty, since HDFC Bank is weighted on the bellwether index by over 12%.

On the derivatives of the counter, a sizable short position has been established. Market watchers predict that the counter will stabilize with the acceptance of the LIC stake raise.

According to Gaurav Dua of Sharekhan by BNP Paribas, “this will help to absorb some of the selling and impart stability to the counter.” “It’s a sentiment booster.”

According to independent market analyst Ambareesh Baliga, “the stock could open with a gap up on Monday and rally by about ₹100 or so, with markets anticipating that LIC would commence buying immediately.” Above all, he said, the boost by LIC will give the stock price a floor.

When the markets reopen next week, bettors who have opened short call and short futures positions may cover them, extending the rally.

HDFC Bank’s shares ended the day 1.4% lower on Thursday, with the NSE Nifty overall down 0.5%. The exchange filing from the bank was made after market hours.

Compared to ₹16,811 crore in the September quarter, HDFC Bank’s consolidated net profit increased by 2.65% to ₹17,258 crore in the December quarter. In July, HDFC Bank, which had absorbed its parent company, HDFC, a mortgage lender, posted a net profit of ₹16,372 crore, up from ₹15,976 crore in the previous quarter.

“HDFC Bank reported a mixed quarter,” per a Motilal Oswal Research report.

According to exchange records, during the quarter, its other income was ₹11,140 crore, while its core net interest income increased to ₹28,470 crore.

Regarding asset quality, the bank reported a decrease in the gross non-performing assets ratio from 1.34% to 1.26% during the previous quarter.

SOURCE: https://www.livemint.com/companies/news/lic-gets-rbi-nod-to-raise-hdfc-bank-stake-to-9-99-11706196453824.html