Yes Bank’s stock surged by 13% after HDFC Bank Group received approval from the RBI to acquire a 9.5% stake

HDFC Bank and its affiliated companies have been granted RBI approval to acquire stakes in ICICI Bank, Axis Bank, IndusInd Bank, YES Bank, Bandhan Bank, and Suryoday SFB.

Yes Bank’s stock rose by up to 13 percent in early trading on the NSE on February 6, following the Reserve Bank’s approval for HDFC Bank Group to acquire stakes in it and five other lenders.

HDFC Bank stated in a regulatory filing that the Reserve Bank of India has permitted the group to purchase stakes of up to 9.5 percent in IndusInd Bank, Yes Bank, Axis Bank, ICICI Bank, Suryoday Small Finance Bank, and Bandhan Bank. The approval, valid for one year, is intended for investments by HDFC Asset Management Company (AMC), HDFC Ergo, and HDFC Life Insurance, as mentioned in the filing.

The approval lasts for one year and will be withdrawn if HDFC Bank Group doesn’t acquire the stakes within that period.

HDFC Bank, along with its affiliated companies HDFC Mutual Fund, HDFC Life Insurance, and HDFC ERGO General Insurance, has been granted approval by the Reserve Bank of India to collectively acquire up to 9.5 percent stake in six banks. These banks include ICICI Bank, Axis Bank, IndusInd Bank, YES Bank, Bandhan Bank, and the sole small finance bank, Suryoday SFB, as announced by the lender to the exchanges.

The regulatory clearance was obtained on January 5, 2024, subsequent to applications submitted by the bank as a promoter or sponsor of the group on December 18, 2023. This approval remains valid for one year, until February 4, 2025.

The notice clarified that although HDFC Bank doesn’t plan to invest in these banks, it sought RBI approval for an increase in investment limits due to the likelihood of the HDFC Bank group’s overall holding surpassing the prescribed 5 percent limit. It stated that these investments are part of the regular operations of the respective group entities guidelines of the central bank.

 Guidelines of the central bank

According to the central bank’s guidelines, the term ‘aggregate holding’ encompasses shareholding by the bank, entities under the same management/control, mutual funds, trustees, and promoter group entities.

“HDFC Bank must ensure that its ‘aggregate holding’ in the mentioned banks remains below 9.5 percent of their paid-up share capital or voting rights at all times,” the notice stated.

As of December 2023, HDFC Mutual Fund held 2.76 percent voting rights in ICICI Bank, 2.49 percent in Axis Bank, and 2.23 percent in IndusInd Bank. HDFC Life Insurance held a 2.92 percent stake in Suryoday SFB, while HDFC Pension Management had a 1.88 percent stake in IndusInd Bank. HDFC Bank held a 3 percent stake in YES Bank as of December 31.

Changes in the stock market

Although the RBI approved HDFC Bank Group’s plan to acquire up to 9.50 percent of IndusInd Bank, shares of both IndusInd Bank and HDFC Bank are trading unchanged in the early morning session.

Today, IndusInd’s share price began positively, reaching an intraday high of ₹1548.90 on the BSE, marking a slight increase from Monday’s close of ₹1539.25. However, HDFC Bank’s shares are trading lower, hitting an intraday low of ₹1438.85 on the BSE.

Regarding the market’s subdued response to this significant corporate development, Saurabh Jain, Vice President of Research at SMC Global Securities, stated, “The Indian stock market’s lack of reaction to this institutional buying can be attributed to three main factors: market weakness, IndusInd Bank shares already being close to their record high, and speculative buying before RBI’s approval.”

Jain noted that the market was already aware of institutional and speculative buying in both stocks, limiting further appreciation in IndusInd Bank shares. Additionally, investors tend to avoid shares that are not discounted during periods of weak market sentiment.

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