The Reserve Bank of India (RBI) has granted approval to Canara Bank for divesting stakes in its mutual fund and insurance subsidiaries through Initial Public Offerings (IPOs).
In a stock exchange filing on Thursday, the state-owned bank announced that the RBI, in a letter dated December 5, 2024, approved the sale of a 13% stake in Canara Robeco Asset Management Company Ltd and a 14.5% stake in Canara HSBC Life Insurance Company Ltd.
The move follows the bank’s board approval in March 2024 for offloading stakes in these subsidiaries as part of its strategic disinvestment plans.
In the insurance segment, Canara Bank holds a 51% stake in Canara HSBC Life Insurance Company, while HSBC and Punjab National Bank (PNB) hold 26% and 23%, respectively. Earlier this year, PNB announced plans to sell a 10% stake during the company’s IPO.
RBI also highlighted the requirement for Canara Bank to align its stake in these entities with the 30% cap by October 31, 2029, as per exemptions granted by the Government of India.
This strategic stake sale aligns with Canara Bank’s broader objectives of unlocking value and meeting regulatory mandates, further strengthening its position in the financial ecosystem.
Canara Robeco AMC, established in 1993 as Canbank Mutual Fund, became a joint venture with the Robeco Group in 2007, evolving into Canara Robeco Mutual Fund. Currently, the mutual fund market includes listed entities like Aditya Birla Sun Life AMC, HDFC AMC, Nippon AMC, and UTI AMC.
Pralay Mondal, MD & CEO, CSB Bank mentioned that, “The move to lower CRR is a welcome step as it releases funds for banks to lend. RBI’s stance on inflation and therefore on Repo rate will have long term implications of lowering inflation and stabilising currency. SORR is a much needed benchmark as it incorporates both regulatory rates and market sentiments. Overall a very prudent approach which focuses on long term interests of the country while calibrating the short term mismatch.”
Deepak Ramaraju, Senior Fund Manager, Shriram AMC stated, “The RBI Monetary Policy Committee kept the repo rates unchanged based on 4:2 voting. The committee also kept the Marginal Standing Facility (MSF) and Standing Deposit Facility (SDF) unchanged. The primary focus is to ensure price stability and hence the focus is to bring inflation down to the target. The RBI has opinioned that the slowdown has bottomed out in Q2 FY 25 and indicated a pickup in high-frequency indicators. The rural demand has shown early signs of recovery whereas the urban demand remains muted. The RBI has reduced the GDP growth projection from 7.2% to 6.6% in FY 25. The RBI has revised the projected inflation to 5.7% in Q3 and 4.6% in Q4 of FY 25. The entire year’s CPI projection is changed to 4.8% from 4.5%. Further to improve the liquidity, the RBI has cut the CRR by 50 bps to 4%.
The RBI has remained overall accommodative to boost growth and maintain price stability. The cut in CRR and bottoming out of the slowdown will augur well with the equity markets in the medium term. The cut in CRR was a welcomed move and will lead to improved credit growth due to increased liquidity in the system. The earnings are expected to pick up in Q4 FY 25 which will be supported by a pickup in government spending.”
Poonam Tandon Chief Investment Officer, IndiaFirst Life stated, “The RBI Policy has been very prudent and practical and as expected kept the repo rate unchanged. However, to address the liquidity issue the MPC has given a CRR cut of 50 bps which will infuse Rs 1.16 lakh crore. The deposit rates for banks should peak. Therefore, we could expect a better NIMs for the next quarter. The inflation has been revised higher to 4.8% and the GDP rate has been revised downwards to 6.2%, it is expected that the growth will improve in the Q4. The MPC has maintained a neutral stance. Therefore, the adverse inflation -GDP dynamics have kept the MPC on hold on interest rates which is for the best.”
Ashwani Dhanawat, Executive Director and Chief Investment Officer, Shriram General Insurance Company, stated, “In its 52nd meeting, the RBI’s Monetary Policy Committee opted to maintain the status quo on key policy rates, keeping the repo rate at 6.50%, while implementing a 50-bps cut in the CRR to 4%. The reduction in the CRR is a targeted response to address ongoing liquidity tightness, providing banks with additional funds to support credit growth and economic activity. With inflation projections for FY25 revised to 4.8%, the committee’s neutral stance reflects a cautious approach in balancing persistent inflationary pressures with the need to foster sustainable growth. While challenges on the consumption and investment fronts remain, the policy adjustments underscore the RBI’s focus on maintaining economic stability while ensuring adequate liquidity in the system.”
Deepak Ramaraju, Senior Fund Manager, Shriram AMC mentioned that, “The RBI Monetary Policy Committee kept the repo rates unchanged based on 4:2 voting. The committee also kept the Marginal Standing Facility (MSF) and Standing Deposit Facility (SDF) unchanged. The primary focus is to ensure price stability and hence the focus is to bring inflation down to the target. The RBI has opinioned that the slowdown has bottomed out in Q2 FY 25 and indicated a pickup in high-frequency indicators. The rural demand has shown early signs of recovery whereas the urban demand remains muted. The RBI has reduced the GDP growth projection from 7.2% to 6.6% in FY 25. The RBI has revised the projected inflation to 5.7% in Q3 and 4.6% in Q4 of FY 25. The entire year’s CPI projection is changed to 4.8% from 4.5%. Further to improve the liquidity, the RBI has cut the CRR by 50 bps to 4%.
The RBI has remained overall accommodative to boost growth and maintain price stability. The cut in CRR and bottoming out of the slowdown will augur well with the equity markets in the medium term. The cut in CRR was a welcomed move and will lead to improved credit growth due to increased liquidity in the system. The earnings are expected to pick up in Q4 FY 25 which will be supported by a pickup in government spending.”
Sandeep Yadav, Head – Fixed Income, DSP Mutual Fund, stated that, “The RBI has erred on caution. They did a CRR cut, but no Repo cut (our base case in pre-policy expected one of the two, with dispersion risks). No rate cuts mean no shocks. However, RBI announced CRR cut to ease liquidity. They did not have much choice. With liquidity set to tighten by around 1.5 lac cr, RBI had to give durable liquidity. In fact, RBI’s FX swaps earlier this week had already forewarned us about this action.
RBI has changed their view on inflation targeting. Inflation management has now become “flexible”, from a target of “4%”. Thus, the RBI continues to move in the direction cast in the last policy when they mentioned that they have a “dual mandate” of growth and inflation. Also, when inflation was close to 4%, RBI decided to “look through it” as CPI would rise in Q3 (which it did) and it was “inflation projection” that mattered, not “current inflation”. When RBI said today that inflation will be 4.5% next quarter, they decided not to focus on “inflation projection” but at the “current inflation”.
We believe it’s because of rupee risk. An easy monetary policy can only lead to further pressure on the rupee, and the RBI must remain cautious. Gov Das couldn’t have spelled the rupee risks in the policy as that would have put more pressure. Despite what RBI says, the rupee risks remain dominant on RBI as evidenced by the increase in FCNR rates. All in all, before going into the policy the market was divided. Thus, post policy there will be critics and proponents. For us, we think it was a balanced policy – hedging all the risks.”
Rahul Bhuskute, Chief Investment Officer, Bharti AXA Life Insurance mentioned that, “RBI has continued to communicate that inflation is still running higher than their target of 4% and they want to bring it down to the target on a sustained basis. Further, domestic economic activity and growth has been holding up well except Q2 GDP print which was tad lower at 5.4% and should rebound in 2HFY25. Therefore, RBI wants to keep its focus on to bring down inflation and accordingly RBI has kept the policy rate unchanged. Further, the rupee has been under pressure due to continued FII outflows and strengthening DXY; any rate cut here would have undermined RBI’s efforts on external stability.”
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