RBI allows SFBs to merge withholding for Ujjivan & Equitas Holdings

The stock of Equitas and Ujjivan holding companies along with their respective Small finance banks (SFB) surged in the trade as the Reserve Bank of India permitted small finance banks. These holding companies apply for the amalgamation of holding companies with small finance banks.

This entire process is required to be done three months prior to completing five years from the date of commencement of business of a small finance bank. This merger just waits on the subject to RBI’s No-Objection. Both the companies have stated that they would be initiating necessary steps for the amalgamation of their respective holding companies with SFB.

 Samit Ghosh, who is the Chairman of Ujjivan Financial Services said, they hold 83 per cent of Ujjivan Small finance bank, RBI has permitted that holding company can reverse merge with the bank and he is glad that RBI has given this nod. Earlier the holding Co would get a 40-50 per cent discount, now this discount will narrow.

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He further added they will apply for a merger of Holding Co with the small finance bank by late Oct or early Nov to RBI and the whole legal process will possibly take about 18 months.

In the meanwhile shares of Equitas Holdings, Ujjivan Financial Services, and IDFC rallied up to 20 per cent on the BSE. This surged as RBI gave permission to SFB to apply for the Amalgamation scheme. On this, the officials from Equitas Holdings said, they too have received the RBI’s nod to apply for amalgamation of the promoter into itself.

RBI has also conveyed that any ‘no-objection, if and when given on the Scheme of Amalgamation, would be without prejudice to the powers of RBI to initiate action, if any, for violation of any licensing guidelines or any terms and conditions of the license, or any other applicable instruction.

It should also be noted that Equitas and Ujjivan are going to complete five years of business operations. They currently own 82 per cent and 83 per cent stakes, respectively in underlying SFBs. Thus, Equitas and Ujjivan are required to dilute their stake in the underlying bank between September 2021 and January 2022.