US-based hedge fund Route One Investment Company has initiated talks with IndusInd Bank to increase its stake in the Hinduja Group-backed lender, which is exploring multiple options to strengthen its Balance Sheet and raise capital, sources told Moneycontrol.

“Route One Investment Company currently holds a 5.41 percent stake in IndusInd Bank through two entities. The plan is to hike it to around 9.9 percent via a preferential allotment of shares. But a final call is yet to be taken by the bank’s board,” an individual privy to the proposed transaction told Moneycontrol.

A few other investors may also join Route One and participate in what could potentially be a wider fundraising round through the preferential allotment route, under which the bank could dilute a combined stake of 10 percent to all parties, this individual elaborated. Based on the current market capitalisation of IndusInd Bank, a 10 percent stake is valued at nearly Rs 3,650 crore.

“RBI was approached for permission and Route One Investment Company has obtained the requisite approval from the regulator for the stake hike,” said a second individual. The preferential allotment is the quickest route for fund raising and the ‘fit and proper’ criteria was also applied on the investor and approved as part of the process, the second individual added.

The banking regulator has taken steps in the past for a closer scrutiny of the shareholding of private sector banks. As per the Master Direction of the RBI, dated November 19, 2015, on prior approval for acquisition of shares or voting rights in private sector banks, “Any acquisition of shareholding/voting rights of 5 percent or more of the paid-up capital of the bank or total voting rights of the bank shall be subject to obtaining prior approval from the Reserve Bank of India.”

“Route One is keen to increase its exposure as it believes there is good scope for growth in IndusInd Bank. Details regarding the pricing of the preferential allotment of shares will be taken up over the next few days,” a third individual told Moneycontrol. Market regulator Sebi had recently announced a temporary relaxation in the framework for preferential allotment of shares to facilitate easier fund raising.

“The promoters -- Hinduja group -- are also keen to hike their stake in IndusInd Bank to 26 percent from the current 14.34 percent (close to regulatory cap of 15 percent) and that is a parallel ongoing process, but that is subject to the RBI’s approval,” said a fourth individual.

All the four individuals spoke to Moneycontrol on condition of anonymity. Moneycontrol is awaiting an email response from IndusInd Bank and Route One Investment Company and has sent reminders. This article will be updated as soon as we hear from them.

The IndusInd Bank saga

Shares of IndusInd Bank have slumped nearly 63 percent since January 8, but have recovered sharply in the last two months.

On March 31, the private sector lender reported a reduction in deposits up to 11 percent after the Yes Bank crisis, which made investors nervous. The bank said, while citing reasons for the drop, “Almost two-thirds of the reduction is on account of government-related accounts — this is largely related to the general private sector bank stance. This will also result in a lower CASA ratio, but reduce our dependency on this category for deposits in future.”

On April 3, IndusInd Bank clarified that there is "no specific transaction under consideration by the board at this stage" in response to reports that the firm is looking to raise as much as USD 500-750 million in ‘confidence capital’ from marque global investors.

"The bank is well capitalised with Tier I ratio of 15 percent and capital adequacy ratio (CAR) of 15.43 percent. There is no specific transaction under consideration by the board of the bank at this stage. We stay committed to evaluate alternatives from time to time that may benefit our stakeholders," the private lender said in a communication to the exchanges.

On July 5, the bank said its deposits stood at Rs 2,11,970 crore in Q1 FY21, up 6 percent year-on-year. Retail deposits and deposits from small business customers amounted to Rs 67,318 crore in Q1 FY21, or 31.8 percent of the total deposits reported during the quarter.

Its net advances rose 4 percent to Rs 2,00,357 crore in Q1 FY21 from Rs 1,93,520 crore YoY, but contracted 3.1 percent from Q4 FY20. CASA ratio stood at 40.2 percent as on June 30 as against 43 percent YoY and 40.4 percent QoQ.

First Published:Jul 8, 2020 11:38 AM IST