RBI gives big relief to Bandhan Bank, allows to open new branches

Bandhan Bank received big relief from the Reserve Bank of India because the restriction on branch expansion would be very stifling for a young bank. Of course, Bandhan Bank got around it by taking over Gruh Finance.

The way RBI's letter is worded is interesting. The RBI said that although you are still violating the promoter dilution norms, since you have made an effort of going from 80 to 60, we think you will comply and therefore we are removing the restriction.

The Bandhan Bank promoter, which is the holding company, has to bring its stake down to 40 percent. It has brought its stake down to 60 percent from 80 percent because it issued extra shares when it acquired Gruh Finance.

This is a big deal for Bandhan Bank itself and we should see the share improve. One reason could be also that Kotak Mahindra Bank has also got a sop from RBI, they have been told that they can bring down their stake from 30 to 26 and remain there till there is dilution.

The original rule wanted Uday Kotak to bring its stake down to 20 percent – that’s not been done. So since they got a concession these people have got not that bigger concession. These guys have to bring down their stake but at least the punishment of not opening branches has gone away.

There is probably a side advantage, completely unconnected advantage – if RBI is in such a forgiving mood then there will be market participants who will think that maybe Axis Bank will get permission to own an insurance company a little more easily.