RBI asks Axis Bank to justify Enam deal price

MUMBAI: The Reserve Bank of India (RBI) has questioned the valuation and structure of the high-profile deal cut by private lender Axis Bank last November to buy Enam Securities-an influential Dalal Street brokerage and investment bank.

The banking regulator, which has sweeping powers over lenders, has asked Axis to justify the valuation of the all-stock transaction worth Rs 2,067 crore. At the time of the deal, Axis, the country's third-largest private bank led by CEO Shikha Sharma-a former ICICI Bank director-was on the lookout for an i-bank, and Enam was up for sale.

"There are no indications that the deal may fall through, but Axis will have to explain the pricing and nature of the deal, which is essentially issuing stocks to pay for something," said a person familiar with the issues raised by the central bank. The point is whether the proposed practice of issuing new shares should be the preferred mode for banks to acquire new businesses, particularly brokerages.

Axis Bank officials declined comment on the matter. But bank insiders were hopeful the regulator would approve the deal. "Technically, the RBI can make certain observations on the deal or ask the bank to tweak the valuation," said the person.

Axis senior officials have met the RBI to put across the bank's views on the pricing and structure, which have been cleared by the bank board as well as Enam's. Enam founders -Nemish Shah, Vallabh Bhanshali and Jagdish Master-will own 3.3% equity in Axis once the deal is executed. Interestingly, for Enam shareholders, swapping their unlisted stock for listed shares of Axis would help them avoid capital gains tax.

As per the deal, Axis Bank would offer shares to stakeholders of Enam Securities , even though the company would be acquired by a subsidiary of the bank. The newly-formed subsidiary would be headed by Manish Chokani.

Source: EconomicTimes