Conserve capital, the loud, clear message from RBI to NBFCs and banks

Muthoot Finance and Axis Bank are instances of the regulator objecting to acquisitions

With assets under management (AUM) of Rs 47,000 crore and a liquidity comfort of 25 per cent tier-1 capital adequacy, the Reserve Bank of India’s (RBI’s) decision to reject Muthoot Finance’s application to buy IDBI Bank’s asset management company (AMC) for Rs 250 crore came as a surprise.

Lack of consonance with the activity of operating a non-banking financial company (NBFC) seems to be the reason behind the decision. For a lender diversified into segments such as microfinance and affordable housing, it is a natural aspiration to look beyond the usual streams of lending business. When larger peers such as HDFC