Karnataka Bank, Dhanlaxmi gain on foreign takeover hopes

Small to mid-sized private banks rally on hopes they could become acquisition targets for foreign banks.

The RBI on Tuesday said it will treat foreign banks operating in the country on nearly equal terms with local lenders should they move to a wholly owned subsidiary structure.

Foreign banks would only be allowed to buy a local private-sector lender after a review of the overall extent of foreign bank penetration, the central bank said in the release.

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The rules issued by the RBI late on Wednesday were generally in line with expectations and could expand opportunities for international banks in the country, since they would have greater freedom to open branches and would be able to participate more fully in the development of the Indian financial sector.

Lakshmi Vilas Bank gains 6.3 percent, Development Credit Bank rises 4.8 percent, Karnataka Bank is up 6.2 percent, Dhanlaxmi Bank is 3.9 percent higher while City Union Bank gains 2.5 percent.

However, large private banks edge down on profit-taking after a recent rally.

ICICI Bank is down 0.7 percent, HDFC Bank falls 0.5 percent.

The Sensex is trading up 0.2 percent after a flat start. Traders expect the index to continue seeing some consolidation in the near-term.

Reuters