HDFC Bank gains 2% as LIC gets RBI nod to raise stake in lender to 9.99%

Shares of HDFC Bank rose nearly 2 per cent to Rs 1,462.85 on the BSE in Monday’s intra-day trade after the Reserve Bank of India (RBI) gave a nod to Life Insurance Corp (LIC) to increase its stake in the lender to up to 9.99 per cent from the existing 5.19 per cent.

HDFC Bank said that RBI, vide its letter dated January 25, 2024 addressed to LIC, has accorded its approval for acquiring aggregate holding up to 9.99 per cent of the paid-up share capital or voting rights of the bank.

LIC has been advised by RBI to acquire the aforesaid major shareholding in the bank within a period of one year that is by January 24, 2025.

Further, LIC must ensure that the aggregate holding in the bank does not exceed 9.99 per cent of the paid-up share capital or voting rights of the bank at all times. 

The lender further said that the approval has been granted with reference to the application made by LIC to RBI.

The aforesaid approval granted by RBI is subject to the conditions mentioned therein including compliance and guidelines, regulations and statutes as applicable.

Meanwhile, post December quarter (Q3FY24) results, since January 16, shares of HDFC Bank underperformed the market by falling nearly 15 per cent till Friday. The stock had hit a 52-week low of Rs 1,382.40 on January 24.

Analysts at InCred Equities believe that elevated cost of deposits and pressure on margins would be a common problem for all banks in the coming quarters, but HDFC Bank is better placed due to its improved penetration providing portfolio granularity and a command over loan pricing.

“Post recent correction, HDFC Bank is available at 1.9x FY25F BV on a standalone basis, which provides an attractive risk-reward ratio. It is our high-conviction ADD-rated stock with a target price of Rs 2,000. We have valued the standalone bank at 2.7x FY25F BV and its subsidiaries at Rs 200/share. Slow growth and weak margins are key downside risks,” the brokerage said in the result update.

Analysts at Elara Capital believe FY25 may be characterized by the nature of balance sheets and deposit franchises. Add to that, the merger for HDFC Bank has made deposit mobilization quintessential and essentially, the most discussed point by investors.

With current liquidity scenario and regulator’s focus on CD ratio, we believe systemic aggression on deposits may sustain amidst HDFC Bank’s heightened needs post-merger, they said. 

Thus, sustained deposit mobilization will be the key to confidence building. Also, its investment in deeper geographies may mean that it is structurally equipped to deliver strong outcomes while managing merger deliverables.

Productivity from these branches may be critical to shaping investment outlook. Given HDFC Bank’s execution skill, we would rather be believers, the brokerage said.