The Reserve Bank of India (RBI) has nixed Muthoot Finance Ltd’s plans to enter into the mutual fund business by rejecting the firm’s proposal to acquire IDBI Asset Management Ltd and IDBI MF Trustee Company Ltd.
A year after Muthoot Finance’s proposal, the banking regulator has said that sponsoring a mutual fund is not in consonance with the activity of a non-bank lender.
“We would like to inform that Muthoot Finance’s request for a no-objection certificate was not acceded to by the RBI,” the Kerala-based non-bank finance company (NBFC) told the stock exchanges on Wednesday.
Muthoot Finance, one of India’s leading gold financiers, was to shell out Rs 215 crore as part of the deal.
While the transaction was to be completed by the end of February 2020, it got delayed due to pending regulatory approvals.
In May last year, IDBI Bank had invited expressions of interest for its mutual fund business, joining a bunch of lenders selling asset management arms as part of plans to divest non-core assets to ease the burden of bad loans.
IDBI Bank has the worst asset quality among Indian lenders.
In 2017, VCCircle reported that IDBI Bank had sought representations from investment banks to sell most of its businesses, subsidiaries, associates, joint ventures, or investments that were not central to its main business with an aim to increase its capital base eroded by mounting bad loans and losses.
The public sector bank had also received an offer from Vikas Khemani’s Carnelian Capital Advisors, as per a Mint report.
IDBI Asset Management
Started in January 2010, IDBI Asset Management is 66.67% owned by IDBI Bank and 33.33% owned by IDBI Capital Market & Securities Ltd.
The government-backed AMC had assets under management (AUM) of Rs 3,396 crore as on March 31, 2020, which declined from Rs 6,238 crore as on March 31, 2019 due to decrease in equity and liquid AUM.
Its quarterly AUM stood at Rs 4,676.74 crore as on September-end.
Its financials improved with the firm swinging to a profit of Rs 75 lakh in 2019-20 from a loss of Rs 4.34 crore a year ago. However, its total income decreased to Rs 36.08 crore from Rs 64.84 crore during the period.
Muthoot Finance witnessed the highest-ever quarter-on-quarter growth of 14% in its gold loan portfolio, which constitutes around 89% of its total loans.
The gold financier’s AUM stood at Rs 47,162 crore as on September-end.
The standalone net profit of Muthoot Finance edged up 4% to Rs 894.39 crore in the September quarter this year, from Rs 857.92 crore in the year-ago quarter. Its total income grew 20.7% to Rs 2,584.47 crore during the period.