India's HDFC Bank gets cenbank nod to acquire up to 9.5% stake in IndusInd Bank

By Admin

16 Dec, 2025

India’s banking sector witnessed a significant development after HDFC Bank received regulatory approval to acquire up to a 9.5% stake in IndusInd Bank. The approval, granted by the Reserve Bank of India (RBI) through CENBANK, comes at a critical time for IndusInd Bank, which has been grappling with governance challenges, leadership changes, and financial stress. The move highlights the regulator’s intent to ensure stability while closely monitoring large shareholding changes in the banking system.

Regulatory Approval with Clear Conditions
The RBI has approved HDFC Bank’s proposal with a clear and time-bound condition. HDFC Bank must acquire a major shareholding in IndusInd Bank within one year from the approval date of December 15. If the acquisition is not completed within this stipulated timeframe, the approval will automatically stand cancelled. This condition underscores the regulator’s emphasis on timely execution and accountability, ensuring that approvals do not remain open-ended and that strategic intentions are translated into action.

In a filing made on Monday night, HDFC Bank confirmed that its group entities have received approval to collectively acquire up to 9.5% of IndusInd Bank’s paid-up share capital or voting rights. These entities include HDFC Mutual Fund, HDFC Life Insurance, HDFC Pension Fund, and other group companies. The approval is for an “aggregate holding,” meaning the combined investment across all HDFC group entities must remain within the prescribed limit.

IndusInd Bank’s Financial and Governance Challenges
The timing of this approval is particularly notable given IndusInd Bank’s recent financial performance. The private sector lender reported its largest-ever quarterly loss for the three months ended March 31. The loss was driven by a $230 million hit to its accounts, stemming from governance and accounting failures. These issues triggered major leadership exits earlier this year, including the departure of former CEO Sumant Kathpalia and Deputy CEO Arun Khurana.

The accounting lapses were linked to shortcomings in the bank’s derivative portfolio, which had a direct impact on its financial statements. Investors and market participants have since raised concerns about the bank’s internal controls and risk management practices, putting pressure on the board and senior management to restore confidence.

Investor Criticism and Board Scrutiny
IndusInd Bank’s board has come under scrutiny for what investors perceive as lapses in oversight. There has been criticism over delays in disclosing the accounting issues and the overall handling of the situation. Transparency and timely communication are critical in the banking sector, and the delay in acknowledging the derivative-related losses has raised questions about governance standards.

These concerns have also influenced market sentiment around the bank, making regulatory oversight and strategic shareholding decisions even more significant. In this context, the RBI’s close monitoring of HDFC Bank’s proposed stake acquisition reflects a cautious and structured approach.

Capital Raising and Strategic Changes
Earlier this year, IndusInd Bank announced plans to raise up to $3.47 billion to strengthen its balance sheet. As part of this plan, the bank also indicated that promoters would be allowed to nominate two directors to the board. This move was seen as an effort to reinforce governance and provide strategic direction during a challenging period.

The potential entry of HDFC group entities as significant shareholders could add another layer of institutional oversight. While the approval does not imply management control, it does signal confidence from one of India’s largest and most stable banking groups, subject to regulatory safeguards.

What This Means for the Banking Sector
HDFC Bank’s approval to acquire up to a 9.5% stake in IndusInd Bank highlights the RBI’s role in balancing stability, governance, and market confidence. The one-year deadline ensures disciplined execution, while the aggregate holding cap prevents excessive concentration of ownership.

For IndusInd Bank, the development could be seen as a step toward rebuilding trust, provided governance reforms and transparency improve. For the broader banking sector, it reinforces the message that regulatory approvals are closely tied to accountability, timely action, and robust oversight.