 "RBI's Enam rider makes life difficult for Axis Bank")
Axis Bank is trading lower by over 4.70 percent after The Economic Times reported that the Reserve Bank of India (RBI) has made it clear to the bank that the proposed acquisition of Enam’s broking and investment banking business has to be an all-cash deal.The Rs 2,067-crore deal has been pending with the RBI since November 2010. Axis Bank closed at Rs 1,096.3 at 1.45 p.m on Friday.
[caption id=“attachment_80119” align=“alignleft” width=“380” caption=“Analysts say it would be difficult for Axis Bank to go through the acquisition of Enam’s broking and investment banking businessif it is made to pay cash for the transaction. AFP Photo”]
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Analysts say it would be difficult for Axis Bank to go through the deal if it is made to pay cash for the transaction. The reason being that the same set of valuation can not be applied for a cash down deal and a share swap deal. Axis Bank was to swap 5.7 shares of its own for every one share of Enam.
DNA had quoted analysts as saying it would be better if the deal falls through since the deal is expensive for Axis Bank. RBI had put some conditions to the deal - the two participants, Axis Bank and Enam, must complete the transaction within six months. The caveat is expected to have a negative tax impact on Axis. Earlier, the central bank raised questions of giving Vallabh Bhansali a board seat in Axis Bank.
RBI had earlier rejected the first proposal submitted to it in which Enam’s promoters were given shares of Axis Bank, while its business was transferred to a subsidiary. Axis Bank then submitted a new proposal whereby the business of Enam would ‘momentarily’ be acquired by the bank which will hold the assets and later transfer these to a subsidiary. This too is unlikely to be cleared, according to news report, as it will set a precedent for future deals.
The report also quotes a senior bank official as saying the board will meet to consider a revised plan. Till such time, Axis Bank is likely to remain volatile.