RBI rejects Muthoot Finance's proposal to buy IDBI MF

Muthoot Finance has said Reserve Bank of India didn't accede to its proposed acquisition of IDBI Mutual Fund. In a regulatory filing on Tuesday, Muthoot Finance Limited said, We would like to inform that Muthoot Finance Limited's request for a no objection certificate was not acceded to by the Reserve Bank of India on the ground that, "the activity of sponsoring a Mutual Fund or owning an Asset Management Company is not in consonance with the activity of an operating NBFC".

It added, consequently, we have informed SEBI vide our letter dated November 23, 2020, that Muthoot Finance Limited is unable to proceed with the proposed transaction on Tuesday.

According to a regulatory filing, a share purchase agreement with regard to sale of IDBI Mutual Fund to Muthoot Finance was signed on November 22, 2019. Muthoot Finance had proposed to purchase 100 equity shares of IDBI Asset Management Limited and IDBI MF Trustee Company held by the sellers.

In the filing, Muthoot Finance said, the parties have been unable to conclude the transactions contemplated under the Share Purchase Agreement within the agreed time on account of RBI declining to issue a no objection for the proposal.

The company said that a "share purchase agreement dated November 22, 2019, was entered into by and between Muthoot Finance Limited, IDBI Bank Limited, IDBI Capital Markets & Securities Limited, IDBI Asset Management Limited and IDBI MF Trustee Company Limited ("Share Purchase Agreement") in relation to the proposal for acquisition by Muthoot Finance Limited of 100% equity shares of IDBI Asset Management Limited held by IDBI Bank Limited and its nominees and IDBI Capital Markets & Securities Limited, and 100 % equity shares of IDBI MF Trustee Company Limited held by IDBI Bank Limited and its nominees".

This was subject to receipt of necessary regulatory approvals from the Securities and Exchange Board of India (Sebi) and other regulators.

IDBI Asset Management also referred to as IDBI Mutual Fund, managed 22 schemes during FY20, comprising 12 equity fund schemes, six debt fund schemes, two-hybrid fund schemes and one each Gold Fund of Funds and Gold Exchange Traded Funds scheme.

On Monday, global rating agency Moody's Investors Service said Muthoot Finance's focus on gold loans will be of help for its asset quality, pointing out that it does not foresee a drop in gold prices – the biggest risks while lending against the precious metal – to happen. Muthoot has robust profitability which will help it maintain capitalisation and funding at the current strong level, the rating agency said.