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

The kerala-based gold loan NBFC had signed a deal to acquire IDBI Asset Management Ltd and IDBI MF Trustee Company Ltd in November 2019, for about Rs 215 cr

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.