Explained: Why M&M acquired stake in RBL Bank

• M&M purchases a 3.5% interest in RBL Bank in order to grow
• Mahindra Group will consider additional investment opportunities within legal bounds.
• may think about buying a stake of over 10%

On Wednesday, Mahindra & Mahindra (M&M) revealed that it had purchased a 3.53 percent share in RBL Bank, a private-sector lender.

The company said that it is open to buying as much as 9.9% of the bank in a stock exchange filing that confirmed the development.

"Subject to pricing, regulatory clearances, and other procedures, we may contemplate additional investment. It will never, under any circumstances, go above 9.9%, the business stated.

M&M bought a stake in RBL Bank for what reason?

M&M is well-established in a number of industries, including technology, automotive, and non-bank financial services. However, the recent purchase of a stake in RBL Bank raises the possibility that the conglomerate is now aiming to grow in the official banking industry.

Along with investment firm Maple, M&M will hold the largest position in the bank after its acquisition of a nearly 10% interest is complete.

It should be emphasised that M&M's declaration comes at a time when regulators are being concerned about business houses owning banks. Following widespread resistance, the Reserve Bank of India (RBI) previously dropped a plan that would have let corporations eventually acquire banks.

Mahindra & Mahindra is committed to exploring additional investment opportunities in RBL Bank despite the cautious regulatory climate, as long as its shareholding does not exceed 9.9%.

Mahindra Group now owns 3.53 percent of the bank's total paid-up share capital, according to RBL Bank, which responded to media claims that the company wanted to acquire a strategic position of more than 15% in the institution on Wednesday.

It further said that any shareholder wishing to buy 5% or more of a bank's shares must obtain prior RBI permission, which as of this writing has not been granted.

Mahindra & Mahindra's investment in RBL Bank opens a new chapter in the bank's history. The bank saw a fall in deposits at the beginning of 2020, although it later rebounded and raised capital in November 2020 to keep investors confident. According to the bank's most recent earnings report for the quarter ended June 2023, higher interest revenue and lesser provisions helped to boost net profit by 43.2% year over year.

How does this affect RBL Bank?

The price of RBL Bank's shares has significantly increased over the past month, rising by 44% from June 26 to the close of trade on Wednesday.

Mahindra & Mahindra has the chance to expand its presence in the banking industry and take advantage of RBL Bank's potential for growth and profitability by purchasing a stake in the bank.