Mitsubishi UFJ Financial Group ( MUFG), Japan's largest bank, is in advanced talks with HDFC Bank to buy a minority stake in the latter's non-banking financial arm for about ₹12,000 crore, said people familiar with the matter.
MUFG is seeking to acquire up to 19% stake in HDB Financial Services, the people said, adding the transaction is likely to close within a month.
"The discussions between HDFC Bank and MUFG are in the final stages, with the Japanese bank set to acquire a 17-19% stake, depending on the progress of negotiations," said a banker familiar with the matter.
This is the second attempt by the two parties to finalise a deal, with an earlier attempt falling apart due to differences over valuation.
The people said HDB's valuation has declined to $8-8.5 billion from $10-12 billion estimated previously.
Deal may Ease Investor Concerns
This is attributed to recent Reserve Bank of India rules impacting NBFCs, and an increase in non-performing assets in the latest quarter. Negotiations between the two sides have been ongoing intermittently since late 2021.
RBI's draft circular on business structures and prudential regulations for investments says multiple group entities within a bank cannot operate similar businesses, prohibiting any overlap in lending activities between banks and group entities.
While HDFC Bank has the option to merge HDB into itself, experts point out that such a move could entail significant operational challenges, including asset-liability mismatches and other reserve requirements mandated by the RBI. Currently, HDFC Bank owns 94.54% of HDB.
HDB Financial Services reported a decline in net profit for the March quarter at Rs 530.9 crore, compared to Rs 656 crore a year earlier. Gross stage 3 assets increased to 2.26%, from 1.90% a year ago, while return on assets fell to 1.8% from 3% in the previous year.
MUFG's entry into HDB's cap table could help ease investor concerns over HDFC Bank potentially being required to reduce its stake to 20% under the proposed RBI regulations. Following the stake sale deal with MUFG, HDB may also reconsider a pre-IPO placement-either opting for a much smaller pre-IPO or possibly forgoing it altogether.
Spokespersons at HDFC Bank and MUFG declined to comment.
Shares of some of the larger companies in the unsecured loan segment have rebounded in recent months.
MUFG is seeking to acquire up to 19% stake in HDB Financial Services, the people said, adding the transaction is likely to close within a month.
"The discussions between HDFC Bank and MUFG are in the final stages, with the Japanese bank set to acquire a 17-19% stake, depending on the progress of negotiations," said a banker familiar with the matter.
This is the second attempt by the two parties to finalise a deal, with an earlier attempt falling apart due to differences over valuation.
The people said HDB's valuation has declined to $8-8.5 billion from $10-12 billion estimated previously.
Deal may Ease Investor Concerns
This is attributed to recent Reserve Bank of India rules impacting NBFCs, and an increase in non-performing assets in the latest quarter. Negotiations between the two sides have been ongoing intermittently since late 2021.
RBI's draft circular on business structures and prudential regulations for investments says multiple group entities within a bank cannot operate similar businesses, prohibiting any overlap in lending activities between banks and group entities.
While HDFC Bank has the option to merge HDB into itself, experts point out that such a move could entail significant operational challenges, including asset-liability mismatches and other reserve requirements mandated by the RBI. Currently, HDFC Bank owns 94.54% of HDB.
HDB Financial Services reported a decline in net profit for the March quarter at Rs 530.9 crore, compared to Rs 656 crore a year earlier. Gross stage 3 assets increased to 2.26%, from 1.90% a year ago, while return on assets fell to 1.8% from 3% in the previous year.
MUFG's entry into HDB's cap table could help ease investor concerns over HDFC Bank potentially being required to reduce its stake to 20% under the proposed RBI regulations. Following the stake sale deal with MUFG, HDB may also reconsider a pre-IPO placement-either opting for a much smaller pre-IPO or possibly forgoing it altogether.
Spokespersons at HDFC Bank and MUFG declined to comment.
Shares of some of the larger companies in the unsecured loan segment have rebounded in recent months.
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