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HSBC Holdings Plc’s Indian asset management unit on Thursday agreed to buy the mutual fund unit of L&T Finance Holdings Ltd for about 3,191 crore to bolster its wealth management business.

The sale of the mutual fund business aligns with L&T Finance Holdings’ objective of unlocking value from its subsidiaries to strengthen its balance sheet, the company said.

“When seen alongside the recent capital raise, it provides us with enough ammunition to increase the pace of retailization in our lending portfolio, which is one of our long-term goals," said Dinanath Dubhashi, managing director and chief executive officer of L&T Finance Holdings.

With assets under management (AUM) of 80,300 crore and more than 2.4 million active folios, L&T Mutual Fund is the 12th largest asset management company (AMC) in India as of September. HSBC AMC had AUM of 11,700 crore.

In July 2010, L&T Finance Holdings entered the mutual fund industry by acquiring DBS Chola. Further, L&T Finance Ltd, a subsidiary of L&T Finance Holdings Ltd, acquired assets worth 8,881 crore of Fidelity’s Indian mutual fund business in 2012.

The British lender is increasingly focusing the bank’s business toward Asia, especially managing the region’s growing wealth. India is one of the key markets for HSBC in Asia, with the lender reporting a profit of more than $1 billion in 2020, making it the lender’s third-largest Asian profit centre after Hong Kong and mainland China.

HSBC expects the acquisition to be immediately accretive to the group’s earnings upon completion and to achieve a return on investment greater than 10% in the medium term.

“This transaction enhances the strength of our business in India and reinforces our status as one of Asia’s leading wealth managers. Combining L&T Investment Management Ltd with our existing Indian asset management business gives us the scale, reach and capability to capture some of the 15-20% annual asset management market growth expected in India over the next five years," said Noel Quinn, HSBC’s group chief executive officer.

The Indian mutual fund industry has seen rapid growth over the past few years. The industry’s AUM has more than doubled from 16.50 trillion as of 30 November 2016 to 37.34 trillion as of 30 November, according to data available with the Association of Mutual Funds in India (Amfi).

Last year, global financial services group Manulife had acquired a 49% stake in Mahindra Asset Management Co. for 265 crore. The AMC’s average AUM was 5,396 crore at the acquisition time, valuing it at 10% of assets.

ABOUT THE AUTHOR

Abhinav Kaul

Abhinav Kaul writes on cryptocurrencies and mutual funds at Mint. His previous stints include ETMarkets, Reuters Bangalore and Press Trust of India.
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