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November 25, 2020

RBI turns down Muthoot Finance’s plan for IDBI Mutual Fund takeover

By Verdict Staff

Indian regulator Reserve Bank of India (RBI) has rejected Muthoot Finance’s proposed purchase of IDBI Mutual Fund.

The India-based non-banking financial company (NBFC), which specialises in gold financing, was set to foray into the mutual fund asset management space with IDBI acquisition.

Muthoot Finance’s request for a no objection certificate was not acceded to by the RBI 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’, the firm said in a stock exchange filing.

The proposed deal

In November last year, Muthoot Finance signed a share purchase agreement to acquire IDBI Asset Management and IDBI MF Trustee Company.

The firm agreed to purchase 100% equity shares of both entities from IDBI Bank and its units for a consideration of INR2.15bn ($29m).

The proposed acquisition, which received the approval from the companies’ boards, was initially expected to close in February this year. The acquired companies were set to operate as Muthoot Finance’s wholly-owned subsidiaries.

The deal was pending approval by the Securities and Exchange Board of India (Sebi) and other regulators.

Muthoot Finance said that the parties have been unable to conclude the transaction within the agreed time period due to RBI’s refusal to issue a no objection for the deal.

Apart from gold financing services, Muthoot has money transfer, foreign exchange and insurance businesses. It operates over 4,500 branches throughout India.

IDBI Asset Management reportedly managed 22 schemes during FY20, including 12 equity fund schemes, six debt fund schemes, two hybrid fund schemes and one Gold Fund of Funds and one Gold Exchange Traded Funds scheme.

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