By The Associated PressMumbai: The Reserve Bank of India on Tuesday said it would purchase Vw Financial Group (VFG) from Mahindra Finance Group (MFG), which bought the banking arm of the country’s largest lender last year.
The RBI’s move comes amid a market rout that has put India’s banking sector in a downward spiral and driven up the share price of its largest lender.VFG, which has more than 1,200 branches across India, has been struggling to maintain the same levels of revenue as it did during the 2008-09 crisis, but has since made significant progress.
It is a strong player in the private banking space, especially among the small to medium size banks, and is widely expected to continue to expand, said Gopal Rai, a former Reserve Bank governor and now head of equity analysis at Bank of America Merrill Lynch.
Rai said the RBI may be able to help Vw get through a tough financial crisis if it takes the right actions.
“The RBI has been trying to get the banking sector to step up its game in the last few years.
So if they are able to step it up, it would be good,” Rai said.
The RBI will buy Vw through a non-binding tender process that will start in the second half of the year.
The move comes as Vw is facing criticism from both its shareholders and analysts who say the bank is not taking the necessary steps to make itself more competitive in the banking space.
Vw declined to comment on the RBS move, saying it had nothing to add to a report on the issue that was published last week.
Mahindrani Mistry, president and CEO of Mahindras Financial Group, said in a statement that the RBA’s decision was not a surprise and it had made it clear in its recent consultation with Vw’s shareholders that it would take the necessary action.
“The RBI’s action in this regard is in line with the recommendations we have been giving to the RBI and the regulator on a number of issues,” Mistry said.
Mahinandras finance group also has branches in other countries, including Japan and Singapore.
In India, the bank’s stock is trading at about 8,000 to 10,000 rupees ($14.50 to $18.50), and the bank has a market capitalization of about $1.2 billion.
It has about 3,700 employees, including 2,400 on its board.
Vw had been in the process of merging with the Indian Banking Corporation (IBC), which was bought by a consortium led by Mahindrakash Agarwal in November 2017.
The merger will create a wholly-owned subsidiary of Mahinands subsidiary Mahindriya Financial Services Pvt.
The two entities will operate independently, with the Mahindrans managing the operations and Mahindro’s doing the banking.