India’s largest private lender HDFC Bank’s $40 billion acquisition of its biggest shareholder could face some regulatory problems due to the stake it would give the bank in the insurance sector, analysts said.
Sources told Reuters last year that the Reserve Bank of India, which acts as regulator for the financial industry, wants banks to limit ownership stakes in insurance companies.
HDFC Bank’s acquisition of HDFC Ltd, declared on Monday, will create an entity with a combined balance sheet worth $237 billion and will include the target’s insurance and other financial subsidiaries.
“Considering there are lot of subsidiaries that need to be merged, there could be some regulatory overhang, particularly in the insurance business where the central bank is not very comfortable with banks increasing their stake,” said an analyst at a domestic brokerage house.
