Axis clears Enam deal

The board of Axis Bank today approved the merger of the financial services business of Enam Securities Pvt Ltd (Enam) with itself but with some changes to the original proposal. The deal announced in November had envisaged an all-stock transaction worth Rs 2,067 crore. Enam shareholders were to receive 5.7 shares of Axis Bank for every 1 equity share of Enam. Though the share-swap ratio remains the same, the deal now involves a cash payout to the bank. In the first step, Enam’s financial services business will be merged with Axis Bank under a scheme of arrangement whereby Enam shareholders will be issued over 1.37 crore shares on the basis of the agreed swap ratio. After the merger, the bank will sell the Enam business to its wholly owned subsidiary, Axis Securities and Sales Ltd (ASSL). ASSL shall then pay the bank a cash consideration of around Rs 274 crore, which represents the book value of the Enam unit. The bank said the proposed scheme of arrangement was formulated in compliance with the conditions prescribed by the RBI and approved by its board. Though the deal was announced last year, its approval got delayed as the central bank wanted a few changes in the deal. When the deal was announced, Axis Bank had said it would induct Vallabh Bhansali, the co-founder and chairman of Enam, as an independent director on its board, subject to approval from its shareholders and the RBI. However, the RBI stipulated that no shareholder of Enam having shares of the bank because of the deal would be eligible for being a director on the board.

Loan cost to rise but not right now

Bankers will probably raise interest rates on home and car loans next month after they have the time to study the impact that today’s 25-basis-point hike in the repo rate to 8.25 per cent will have on their borrowing costs.

The RBI has raised the repo rate by 3.50 percentage points since March last year to combat inflation. The repo is the rate at which the central bank lends funds to banks.

Commercial banks have raised their lending and deposit rates in tandem with the RBI’s policy action.

The State Bank of India —the country’s biggest commercial bank — has raised its lending rates six times this calendar year.

Its benchmark prime lending rate (BPLR) is now pegged at 14.75 per cent, rising 225 basis points since January.

Its base rate — the minimum lending rate below which the bank cannot lend except in very special cases — is at 10 per cent compared with 8 per cent at the start of the year.

In its note issued after its mid-quarter policy review, the RBI said, “Forty five scheduled commercial banks raised their base rates by 25 to 100 basis points after the July review. Consequently, the modal base rate of banks rose to 10.75 per cent in August from 10.25 per cent in July.”

There would not be an immediate transmission of rates by banks to customers, as any further increase would have an adverse impact on credit growth and asset quality.

The hike in the repo rate coupled with moderating demand for credit could further impact banks’ net interest margins this fiscal, the report added.

 “Even as the RBI justifies this rate hike as a move to dampen inflationary expectations, it is difficult to fathom that this will be achieved when a cumulative rate hike of 325 basis points since March 2010 could not achieve this objective,” Ficci secretary-general Rajiv Kumar said.

Assocham agreed with Ficci that successive rate hikes by the RBI have not been able to control rising inflation.

The CII said urgent action was required to step up the growth momentum, especially in the manufacturing sector. Industry associations are also worried about an increase in home loan rates and other sectors that would slow down consumption, further hitting growth.

Referring to economic slowdown in the US and European economies, Ficci said the RBI had made a reference to the worsening global growth, but surprisingly went ahead with a rate hike citing a jump in the August inflation rate to 9.8 per cent, from 9.2 per cent in July.

Global economic uncertainties and high interest rate environment is likely to put brakes on new investments and put corporate India in a difficult position to maintain the growth momentum, Assocham Secretary General D S Rawat said.

Growth in industrial production slipped to a 21-month low of 3.3 per cent in July. The country's economic growth also moderated to 7.7 per cent during the April-June quarter this fiscal, the slowest growth in six quarters.