Mutual funds may not get special exemption on maximum holdings post HDFC Bank-HDFC merger: Report
India's markets regulator, Sebi, is unlikely to grant mutual funds an exemption if their maximum permitted holdings in HDFC and HDFC Bank exceed after the two entities' merger. At least 60 equity mutual fund schemes may see their exposure exceed the 10% capping in HDFC Bank-HDFC merged entity.
Mutual funds are unlikely to get any exemption if their maximum permitted holdings in HDFC and HDFC increase after the completion of the two entities' merger. As per media reports, the market watchdog Sebi is not inclined to relax the holding limit post-HDFC-HDFC Bank merger which is expected to take place in the next few weeks.
Two sources told Reuters that India’s markets regulator is unlikely to give special exemption to mutual funds if they breach the norms for maximum permitted holdings in security after the merger of HDFC Bank and HDFC.
However, one of the sources also said that the regulator could consider this overshoot as a "passive breach," implying no deliberate attempt to flout rules.
If that case, then the funds will have 30 days to rebalance their portfolio --- which can be extended by another 60 days. However, if failed to do so, these funds may face regulatory action.
According to these sources, regulatory intervention is warranted if there is a wider impact on the market, which is not the case here.
Both the sources have declined to be named. While HDFC Bank and SEBI did not reply to Reuters on their emailed requests for comments.
Hence, the development is yet to be confirmed by the parties involved.
It needs to be noted that both HDFC Bank and HDFC are heavily owned by mutual funds. However, post their merger, mutual funds fear that pressure would mount on them to reduce their holdings or either any limitations on increases --- which are seen as an overhang on the stock price of the merged entity.
Generally, as per Sebi's guidelines, in the case of equity funds, a scheme’s portfolio cannot hold more than 10% in a particular stock. But those exchange-traded funds and funds that invest in particular sectors are exempted from this cap. Also, a fund house could invest up to 5% of its NAV (Net Asset Value) in the unlisted equity shares or equity-related instruments for open-ended schemes and 10% of its net asset value in case of a close ended scheme.
Post the merger, it is expected that at least 60 equity mutual fund schemes together may see their exposure exceed the 10% capping in HDFC Bank-HDFC merged entity.
Last month, in analysts meeting, HDFC Bank's management expects the merger with HDFC to be completed in 4-5 weeks and sounded upbeat on the post-merger prospects of the bank.
BNP Paribas highlighted key takeaways from Sashidhar Jagdishan, MD's opening remarks in the analyst meeting. The brokerage revealed that the management has maintained a 3.7-3.8% net interest margin post-merger (pretty much the same as the last reported standalone margin). Also, they plan to achieve a post-merger RoA of 2% on day zero of the merger.
Further, HDFC Bank plans to leverage the large distribution network and unique customer base (100m+) of the group going forward, with a strong focus on cross-sell to achieve its stated objectives. Additionally, they plan to hold CASA of around 40% post-merger.
On Wednesday, HDFC Bank's share price ended at ₹1602 apiece, marginally down on BSE. Meanwhile, HDFC's share price ended at ₹2645.10 apiece, also down marginally.
(With inputs from Reuters).
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Business NewsCompaniesNewsMutual funds may not get special exemption on maximum holdings post HDFC Bank-HDFC merger: Report
First Published:14 Jun 2023, 06:05 PM IST
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