As IndusInd Bank received the RBI approval for setting up a wholly-owned asset management (AMC) business, Nomura India called the development positive for the private lender that currently does not have any direct para-banking subsidiary businesses. IndusInd Bank, Nomura India said, can now generate revenue as a ‘manufacturer’ of mutual funds.
The average assets under management (AUM) for IndusInd bank as a distributor stood at mere Rs 4,300 crore at FY23 end. Therefore, even as the fresh development is positive for IndusInd Bank, the scale IndusInd Bank can attain as a manufacturer of mutual fund products will be key to watch, Nomura India said.
On Tuesday, the stock was trading 2.92 per cent higher at Rs 1,387 on BSE.
"While the AMC business is a high-RoE-generating one, it has low barriers to entry and is fiercely competitive with 44 existing players. The largest listed AMC, HDFC AMC has a market cap of $10 billion while UTI AMC (7th largest AMC with a market share of 5 per cent), has a market cap of $1.6 billion," Nomura India said.
Nomura India said the RBI’s approval to IndusInd Bank for setting up a wholly owned AMC subsidiary is interesting because until recently the central bank was not forthcoming in allowing banks to incrementally own non-banking or para banking businesses.
"In fact, RBI’s new private bank licence norms, mention NOFHCs (Non-operative Financial Holding Company) as the ‘preferred structure’ for fresh licence applicants having other group businesses. However, recently we have seen RBI offer some relaxations to banks (e.g., allowing HDFC Bank and ICICI Bank to increase stakes in their respective insurance subsidiaries above 50 per cent in FY24)," Nomura India said.
The brokerage said this is the first instance of RBI allowing an existing bank to set up a fresh AMC business as a subsidiary -- excluding legacy subsidiaries of old licence holders.
"It remains to be seen if this sets a precedent for the rest of the sector – as this can have positive ramifications for smaller banks that have not thus far been able to set up such subsidiaries. Moreover, it remains to be seen if RBI extends such relaxations to owning other para banking businesses apart from the AMC business (e.g., insurance, broking, wealth etc) to existing bank licensees," it said.
For now, the extent of the impact of this development on IndusInd Bank's valuations is not expected to be significant over the medium term, said Nomura India as it maintained its 'Neutral' with a target price of Rs 1,580.