Shares of Equitas Holdings and Ujjivan Financial Services Ltd plunged as much as 32% to record highs on Friday. Shares fell after the companies notified stock exchanges that the Reserve Bank of India had asked them to comply with original license terms.
“ESFBL has received a letter dated October 24, 2018 from RBI in response to its request in which RBI advised it to comply with all requirements of the Guidelines for the Licensing of Small Financial Banks dated November 27, 2014 and the terms and conditions of the banking license issued to it, particularly with regard to the registration of the Bank within three years from the date of the start of its operations, i.e. no later than September 4, 2019 and the maintenance of the promoter’s participation in the Bank at at least 40%, for a period of five years from the date of commencement of the Bank’s activities, i.e. by the September 4, 2021,” Equitas Holdings said in an exchange filing with the BSE.
In its filing with the ESB, Ujjivan Financial said: “The RBI in its letter dated 24th October 2018 reiterated that the Bank must comply with all the requirements of the guidelines for the licensing of small banks dated November 27, 2014 and the terms and conditions of the banking license issued to it relating specifically to the listing of the Bank within three years from the date of the start of its operations, i.e. at the no later than January 31, 2020 and the maintenance of the promoter’s participation in the Bank at at least 40%, for a period of five years from the date of commencement of the Bank’s activities, i.e. until
January 31, 2022.”
Brokerage firm Macquarie said the listing of the small financial bank subsidiary would lead investors to give Ujjivan Financial Services shares a holding company discount, implying that its stock will have a lower valuation than its subsidiary company.
A holding company discount exists due to limited stock float, tax inefficiency, and additional administrative costs.
As per the RBI mandate, Ujjivan Small Finance Bank is to be listed on the stock exchange by January 31, 2020.
Shares of Equitas Holdings were trading at Rs 87.10, down 32.09%. It hit a 52-week low at Rs 85.10 intraday. Shares of Ujjivan Financial Services were trading at Rs 168.95, down 23.20%.
Meanwhile, benchmarks traded weakly, dragged down by financials, IT and consumer stocks. The Nifty fell 70 points, or 0.68%, to 10,055 at 1:48 p.m., while the Sensex fell 163 points, 0r 0.49%, to 33,526.
–with contributions from agencies.