(Reuters) -Shares of India’s RBL Bank surged to a five-year high after Emirates NBD announced a $3 billion investment in the lender, with investors betting the deal will turbocharge foreign investor interest in the country’s banking sector amid easing regulations.
The largest cross-border deal in India’s financial sector, which lifted shares across the industry, signals a new direction not just for the lender but also for the country’s broader banking sector, analysts said.
Under the deal, Emirates NBD will acquire a 60% stake in RBL Bank through a preferential issue priced at 280 rupees apiece, a 6.5% discount to stock’s closing price on Friday, the Indian lender said on Saturday.
An open offer for shares from the public will precede the preferential issue, the bank’s management said on Sunday.
LANDMARK DEAL, SAY ANALYSTS
CLSA analysts said the transaction was a “landmark deal” for a financial services company in India, adding that the benefits of the investment would play out over the long term.
Analysts at Citibank said the deal was a positive move for the wider sector as well and signaled heightened foreign interest in Indian banks.
Cross-border deals worth $8 billion were announced in India’s financial sector between January and September amid easing regulatory restrictions.
Reuters reported in June the Reserve Bank of India was showing greater willingness to let foreign regulated financial institutions invest in Indian lenders.
The deal, subject to regulatory and government approvals, could boost RBL’s net worth to $5.12 billion from $1.82 billion, while opening up the speed highway for organic growth via secured retail and corporate assets, Emkay Global analysts said.
Shares of RBL were up 7% at 321.30 rupees, their highest level since February 2020, as of 11 a.m. IST on Monday. The stock has more than doubled so far this year, compared with a 15% climb in the private banks sub-index.
Other smaller private lenders also surged, with DCB Bank and South Indian Bank soaring 14% and 17%, respectively. The Nifty private bank index and Nifty Bank index were both trading 1% higher on Monday.
FROM MID-SIZED BANK TO LARGE LENDER
RBL is looking to transform from a mid-sized lender to a large bank, CEO R Subramaniakumar said on Saturday, adding that newer lines of business such as wealth management will also be considered.
RBL Bank has undergone a leadership reset in recent years after the abrupt exit of its CEO in 2021. The Indian lender has since worked to rebuild investor confidence following concerns over governance and asset quality, particularly in its unsecured lending portfolio.
The lender also reported a 20% drop in its quarterly profit on Saturday, citing elevated write-offs in its credit card portfolio.
Following Emirates NBD’s the capital infusion, the bank’s capital adequacy ratio is expected to rise to nearly 40%.
The strong parentage and improved capital infusion will likely lead to a rating upgrade and provide enhanced access to low-cost debt, Emkay analysts said.
This, in turn, will allow the bank to accelerate growth in its secured retail and corporate loan segments, which are less volatile and offer better risk-adjusted returns, they said.
($1 = 87.8762 Indian rupees)
(Reporting by Kashish Tandon in Bengaluru; Editing by Nivedita Bhattacharjee, Sherry Jacob-Phillips and Ronojoy Mazumdar)
