AMC Stock – Small finance banks gain as RBI allows promoters to apply for reverse merger
Shares of small finance banks surged on Monday after the Reserve Bank of India allowed them to apply for amalgamation with the promoter entity on completion of five years from the date of commencement of business.
Ujjivan Financial Services Ltd, Equitas Holding Ltd, IDFC Ltd surged up to 20% in early trade on Monday.
On Saturday, Equitas Holding Ltd and Ujjivan Financial Services said they would initiate steps as per the RBI’s approval to file for a scheme of amalgamation of the promoter entity with the respective small finance banks.
“This is positive for listed holding companies Ujjivan Finance & Equitas Holding that may complete five years by 3Q-4Q2021 and trade at c.40% holding company discount versus value of stake in the bank. Some other SFBs in IPO stage can also gain, but AU SFB doesn’t have holdco structure. IDFC Ltd may indirectly benefit but needs to sell stake in AMC to simplify holdco structure”, said Jefferies India in a note to investors.
In April this year, the Association of Small Finance Banks of India had made a representation to RBI to grant in-principle approval to small finance banks for reverse merger with their respective holding companies.
“RBI will examine the request on merit, from the angle of regulatory/supervisory comfort and will convey No-Objection for such amalgamation based on satisfactory outcome of a due diligence exercise and following the procedure of the above mentioned Master Direction,” it added.
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