Tag: nofhc

Taking a cue from IDBFC First Bank, Equitas Small Finance Bank and Ujjivan SFB plan to reverse merge the holding companies into the SFB, thereby bringing down the promoter shareholding to zero.

In case of Ujjivan SFB, promoter shareholding, or the shareholding by the non-operating holding comapbny was 83.32 per cent as in June 2021 while in the case of Equitas, the NOFHC held 81.98 per cent of the bank in March this year.

RBI rules stipulate that the SFB promoters must bring down their shareholding to 40 per cent in five years.
The reverse merger, in this case, brings down the promoter shareholding to zero as post merger, the holding companies would cease to exist.

Equitas SFB

As per the SFB licensing guidelines of RBI, a promoter of SFB can exit or to cease to be a promoter after the mandatory initial lock-in period of five years (initial promoter lock-in) depending on RBI’s regulatory and supervisory comfort and SEBI regulations at that time.

In case of Equitas Small Finance Bank (the bank), the initial promoter lock-in for the company expires on September 4, 2021.

Hence, the bank had requested RBI if a scheme of amalgamation of the company with the bank, resulting in exit of the promoter, can be submitted to RBI for approval, prior to the expiry of the said five years, to take effect after the initial promoter lock-in expires.

RBI vide its communication dated July 9, 2021, to the bank has permitted the bank to apply to RBI seeking approval for scheme of amalgamation.

RBI has also conveyed that any ‘no objection’, if and when given on the scheme of amalgamation, would be without prejudice to the powers of RBI to initiate action, if any, for violation of any licensing guidelines or any terms and conditions of license, or any other applicable instruction, it added.

The share exchange ratio would result into each shareholder of the transferor company, Equitas Holdings, getting 226 equity shares of the transferee company, Equitas SFB, for every 100 shares held by them in the holding company.

Holding company

The RBI had mandated a holding company structure to ring-fence the bank from other financial services businesses of the group. A reverse merger is beneficial to the shareholders of IDFC as it would remove the holding company discount. While the 2013 RBI rules mandated it, in the 2016 guidelines for “on-tap” bank licensing, the RBI had not sought requirement of holding company for promoter if there are no other group entities.