buyout of 9.27 per cent of the HDFC stake from Standard
Life for over Rs3,000 crore may have significant ramifications
for the Indian banking industry after the promised liberalisation
after 2009. It is no secret that overseas banks, especially
US-based banks, are keen on acquisitions in India. The
US government has been urging the Indian government to
further open up the Indian financial services sector for
quite some time now.
Citigroup, a sizeable stake in one of the largest home
mortgage companies in the country makes good sense. After
the stake acquisition, Citi would become the single largest
shareholder in HDFC and would have a nominee on its board.
held a 3.59-per cent stake in HDFC as on 31 March 2006
though Citigroup Global Market, Mauritius.
investors, other than Citigroup Global Market, held more
than 64 per cent of HDFC as of 31 March 2006. Most of
these overseas investors are financial investors who may
not have any strategic interests in holding on to their
investments. They may be willing to sell out at a future
date at the right price.
institutional investors, including mutual funds, held
only around 6 per cent of HDFC as on 31 March, 2006. Hence,
Citi would not have much difficulty in acquiring a controlling
stake in HDFC as and when RBI allows such acquisitions.
Based on the current roadmap of RBI, acquisitions by foreign
banks would be allowed after 2009.
also holds 22 per cent of HDFC Bank, the second-largest
private sector bank in the country. Consequently, if RBI
permits it, Citigroup may be looking at a grand acquisition
and merger of both HDFC and HDFC Bank with its Indian
operations after 2009.
Life''s decision to sell its 9.27-per cent stake in HDFC
is seen as a move to increase its holdings in its insurance
JV with HDFC HDFC-Standard Life. As per current
FDI norms, foreign companies can hold up to 26 per cent
of domestic insurance companies, either directly or indirectly.
HDFC Standard Life is the second-largest private sector
life insurance company in the country after ICICI Prudential.
Life''s direct stake in the insurance company is currently
around 18 per cent with another 8 per cent being controlled
indirectly through its holding in HDFC. After the stake
sale in HDFC, Standard Life can now raise its direct holdings
in the insurance company to 26 per cent.
is expected that Standard Life would raise its stake in
HDFC Standard Life beyond 26 per cent as and when the
FDI limit in the sector is increased.