Ujjivan Financial Services share price zooms 20% on RBI panel proposals; rallies 140% since March

Ujjivan Financial Services share price zoomed 20 per cent to hit upper circuit at Rs 298.55 apiece on BSE after the Reserve Bank of India (RBI) released Internal Working Group (IWG) report related to the ownership of private sector banks. For the first time in 2013, RBI in its Guidelines for Licensing of New Banks in the Private Sector had prescribed several structural requirements of promoting a bank under a Non-operative Financial Holding Company (NOFHC). Banks currently under the NOFHC structure may be allowed to exit from such a structure if they do not have other group entities. Macquarie Research and Motilal Oswal Financial Services see this as a positive. “This would be a positive as it removes the two-layered structure and benefits the shareholders of Equitas Holdings, Ujjivan Financial Services, and IDFC Ltd. (if they sell the MF business),” analysts at Motilal Oswal said. 

Ujjivan Financial Services shares have rallied 140 per cent from March low of Rs 124.55 apiece. Macquarie Research also echoed the similar views and said that banks currently under a NOFHC (non-operating financial holding company) structure may be allowed to exit from such a structure if they do not have other group entities in their fold. “This could benefit Ujjivan Financial Services,” it said.

Motilal Oswal also said that exiting a holding company structure also removes a key overhang to reduce promoter stake to 40 per cent within five years of the commencement of banking operations in both Equitas and Ujjivan. IWG also recommended that the minimum initial capital requirement for licensing new banks should be enhanced to Rs 1,000 crore from Rs 500 crore for universal banks and from Rs 200 crore to Rs 300 crore for small finance banks. 

IWG said that banks licensed before 2013 may move to a NOFHC structure at their discretion, once the NOFHC structure attains a tax-neutral status, all banks licensed before 2013 shall move to the NOFHC structure within 5 years from the announcement of tax-neutrality. Furthermore, it added that banks should not be permitted to form/acquire/associate with any new entity [subsidiary, JV, or Associate (>20% stake – signifying significant influence or control)] or make fresh investments in existing subsidiaries/JVs/associates for any financial activity.