The IPO of Mumbai-based RBL Bank has been entangled into regulatory issues following certain share issuances. Formerly known as The Ratnakar Bank Ltd, the company filed its draft red herring prospectus (DRHP) with market regulator SEBI last month.
The INR1,100 crore RBL Bank IPO would have also seen existing shareholders Beacon India Private Equity Fund and GPE India offloading their shares. While the INR1,100 crore was scheduled to go to the bank, 1.75 crore shares were to be sold by existing investors through an offer for sale (OFS).
Although RBL Bank has been around since 1943, it continued to remain a regional player for long. It is only in the last five years that its strategy has changed in favor of nation-wide expansion. Under a new management led by chief executive officer Vishwavir Ahuja, RBL Bank has expanded to a network of 183 branches and 351 ATMs across 13 Indian states. Majority of this growth was fuelled by the acquisition of business banking, credit cards business and mortgage portfolio of Royal Bank of Scotland (RBS) in August 2013.
It was during the tenure of previous management when the bank issued shares to several people in order to meet Reserve Bank of India (RBI) requirements of expanding share capital. However, it violated the rules laid out by SEBI and the Companies Act (1956) on public offerings. According to the Companies Act (1956), offer made to more than 49 people is deemed a public issue and thus, requires the nod of market regulator. Although this limit has been increased to 200 people in the new Act of 2013, old laws are applicable on back-dated transactions.
In its DRHP filed with SEBI, the company has said the then Ratnakar Bank first issued shares to 2,591 investors in February 2003. This allocation was the unsubscribed portion of a rights issue. In a similar transaction, unsubscribed portion of another rights issue was allotted to 1,969 investors in March 2006. The bank once again crossed the threshold by making a preferential allotment of 2.52 lakh shares to 352 persons in 2006.
Our Bank has, in certain instances in the past, made allotments of equity shares to more than 49 persons that were not in compliance with the then-applicable laws relating to a public offering of securities, which may subject our Bank to, among other things, sanctions, adjudicatory penalties, remedial directions and other adverse orders, from, amongst others, the RoC and SEBI.
– RBL Bank in its prospectus filed with SEBI
Apart from the above mentioned actions, there is a possibility of these allotments being declared void. The positive aspect of the whole situation is that the RBL Bank took the initiative of disclosing these discrepancies in the prospectus. These issuances are similar to what was observed in the case of diagnostic laboratory chain Thyrocare.
Read Also: Thyrocare IPO runs into trouble with SEBI
Although Thyrocare is yet to file DRHP with SEBI, it is no secret that existing investors CX Partners and Norwest Venture Partners were planning to sell some of their shareholding through the IPO. CX Partners holds about 27% in the company while Norwest Venture Partners owns 10% equity stake. According to media reports, CX Partners is talking to other private equity investors to sell its five-year-old investment in the company due to the delays.