RBI rejects Muthoot Finance's plan to buy IDBI AMC over lack of consonance

Consequently, Muthoot informed Sebi that it is unable to proceed with the proposed transaction
The Reserve Bank of India (RBI) has rejected Kerala-based Muthoot Finance's proposal to acquire IDBI Asset Management Company (AMC).

 

In a notification to the exchanges on Tuesday, Muthoot Finance said its request for a no-objection certificate was not acceded to by the RBI on the ground that, “the activity of sponsoring a mutual fund (MF) or owning an AMC was not in consonance with the activity of operating a non-banking financial company (NBFC)".

 

Consequently, Muthoot informed the Securities and Exchange Board of India that it was unable to proceed with the proposed transaction.

 

The Kerala-based gold loan NBFC, in November 2019, had signed a share purchase agreement to acquire IDBI Asset Management and IDBI MF Trustee Company for a consideration of around Rs 215 crore. Through this acquisition Muthoot was planning to enter the MF asset management space.

 

According to the agreement, Muthoot Finance would have acquired 100 per cent equity shares of IDBI Asset Management held by IDBI Bank and its nominees and IDBI Capital Markets & Securities, and 100 per cent equity shares of IDBI MF Trustee Company held by IDBI Bank and its nominees, subject to receipt of regulatory approvals.

 

IDBI Bank had to sell its MF arm after being acquired by state-owned insurance behemoth Life Insurance Corporation (LIC) of India since LIC already had an AMC. The fund house runs 22 schemes with a robust asset base across products, geography, and investors. Global rating agency Moody’s Investor Service said Muthoot had robust profitability, which would help it maintain capitalisation and funding at the current strong levels.

 

In the second quarter (Q2), the gold loan-focused NBFC reported a consolidated net profit of Rs 930.8 crore, compared to Rs 908.54 crore in the same quarter of the previous financial year.

 

The company's consolidated loan assets under management grew 29 per cent to Rs 52,286 crore during April-September of 2020-21. On a standalone basis, the net profit of Muthoot Finance rose to Rs 894.39 crore in Q2, from Rs 857.92 crore in the year-ago quarter.

 

The company said it saw the highest-ever quarter-on-quarter growth in its gold loan portfolio.

 


Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel