IDFC shares surge after RBI grants bank licence

Mumbai: Shares in IDFC Ltd surged as much as 8.8 per cent on Thursday, after the Reserve Bank of India granted a preliminary bank licence to the infrastructure sector lender, one of the two firms to get the approval.

However, shares in other major applicants that did not get licences at this stage slumped, with LIC Housing Finance falling as much as 6.7 percent and L&T Finance Holdings Ltd sinking 10.5 per cent. Some analysts warned that the RBI could go slow in granting more approvals. The other company to receive a licence from the RBI on Wednesday, microfinance firm Bandhan Financial Services, is not listed.

Analysts said ‘IDFC would likely benefit in the long-term given the opportunities for expansion in a country where about half of its 1.2 billion people do not have access to formal banking services.’

Shares in the financial firm had already surged 21 per cent since the RBI started reviewing bank licence applicants in November, as of Wednesday's close, given IDFC's perception as one of the frontrunners to get the approval. However, analysts cautioned that IDFC's profitability in the near-term would likely be impacted. The RBI gave both IDFC and Bhandan 18 months to fully comply with central bank regulations before receiving final bank licence approval.

"We expect some run-up in stock price for IDFC in (the) immediate term, though upside is likely to be capped given operational challenges," said Edelweiss in a note dated April 2. During the probation period, IDFC will need to meet all operational and compliance requirements for lenders, including bearing the cost of setting up branches.

IDFC shares were up 1 per cent, while LIC Housing shares were down 1 per cent and L&T Finance stock was down 9 per cent.