In This Economy: Trustees Clash, RBL Deal, Regulation Evolves

Happy Tuesday! Over the last week, there has only been one corporate story worth discussing — the rift in the house of Tatas. Discussions ranged from factions being formed at Tata Trusts to decision-making moving away from a culture of unanimity to even a veiled threat being circulated among trustees. The events led to a meeting in Delhi where two senior ministers sat down with representatives of the group to discuss the future course of events. Now there are reports of a truce between members. What will be crucial to watch out for is the reappointment of directors due this year. Will the group of trustees look the same as it did until now? We'll keep reporting on it.

On to this week's newsletter!

Dubai government-owned lender Emirates NBD is looking to buy a controlling stake in India's RBL Bank. This is a landmark deal on all aspects. Sources told NDTV Profit that the Dubai-based lender will acquire a 60% stake in the domestic lender and merge it with its wholly-owned subsidiary. After that transaction, RBL Bank will be the direct subsidiary of Emirates NBD in India.

For the foreign lender, this is to gain a firm footing in the lucrative Indian market. It has already been part of negotiations for IDBI Bank, where the government and its insurance company, Life Insurance Corporation, are looking to sell a material stake. Will those negotiations now end? Or will Emirates NBD continue to pursue the opportunity?

What is also important here is the regulatory stance. Sources state that the regulator is comfortable allowing Emirates NBD to own a 60% stake in a domestic lender, as long as the voting rights are capped at 26%. Considering RBL Bank's dispersed shareholding, which is entirely public, Emirates NBD is confident that a 26% cap still works in its favour.

The foreign lender does not expect other shareholders to band together to limit any special resolutions. It will also focus on strong corporate governance and a profitable show at RBL Bank to ensure that no shareholder feels they are being shortchanged.

To begin with, RBL Bank will continue serving the retail and MSME customers it currently serves. Emirates NBD will help it develop a strong cross-border and NRI business segment. Considering the India-Middle East corridor's influence in the inward remittances market, this segment is likely to be highly profitable.

For RBL Bank, this is an excellent way to boost capital adequacy and fund its future growth. If the $3 billion investment tag materialises, this will be one of the largest infusions by a single foreign player into an Indian lender.

What started as a small regional bank in 1943 has grown to become a mid-sized private bank now. In 2010, former Bank of America leader Vishwavir Ahuja took over as MD & CEO to transform The Ratnakar Bank into RBL Bank. The bank’s periodic stresses, most notably Ahuja’s sudden and untimely exit in December 2021, have arisen. Microfinance, credit card business, and corporate lending have all had a deep impact on RBL Bank's business over the years.

At 27.5%, unsecured loans form a large chunk of the Rs 94,431 crore loan book. While this offers higher margins, the risk also increases proportionately. Net interest margin was at 4.5% in Q1, compared with 4.89% as of March 31. This is typical for most lenders who have seen the margins shrink owing to the easing rate cycle over the last few months. Return on assets has risen to 0.56% in Q1, compared to the preceding two quarters. However, it is still lower than the 1.14% in June 2024. The bank's 28% CASA ratio, in a Rs 1.12 lakh crore deposit book, is also strong compared to peers.

Under R Subramaniakumar's leadership since June 2022, the bank has managed to streamline operations, appropriately provide for any stress, and focus on key growth areas. Going ahead, there are no material management changes envisaged yet, but things are still fluid.

This deal is also a new chapter for RBI's regulation of private banks in India. While private banks are allowed to have foreign investors buy up to 74%, an individual foreign investor is limited to 15%. Over the last few months, there has been a push for the RBI to consider a higher ceiling for foreign ownership. We have seen SMBC take up over 24% in Yes Bank, with expectations of that shareholding widening further. In that context, the Emirates NBD-RBL Bank deal might set a new benchmark for bank ownership in India.

Guess the next few months are going to be incredibly news-heavy as these deals fructify and a new banking paradigm emerges. We will keep you updated throughout.

• Shrimi Choudhary reports that SEBI is considering phasing out its weekly expiry framework for F&O contracts.

• Agnidev Bhattacharya finds out that the SBI General Insurance IPO might be on the back burner, as India's largest lender is looking to focus on its AMC listing.

• Nisha Poddar reports that a forced listing of Tata Sons might be detrimental for its largest shareholder Tata Trusts

• Mehli Mistry, who was one of the key figures in the Tata Trusts boardroom drama, might have softened his stance, Nisha reports

• MobiKwik is looking to apply for an NBFC licence as more payments players are trying to figure out revenue-generating business models. Co-founder Upasana Taku told Agnidev on the sidelines of the Global Fintech Fest

Larry Fink, CEO of the world's largest asset manager, BlackRock, believes that Bitcoin serves the same purpose as gold. That is a significant departure from his previous view that Bitcoin might be the domain of thieves and money-launderers. Understandably, though that Bitcoin has hit its best trading period this month, before eventually falling.

Until next week, this is Vishwanath signing off!