ICICI Bank will consider delisting of its broking subsidiary ICICI Securities (I-Sec) in a board meeting on June 29. The I-Sec board will also consider it on the same day.
While the swap ratio will be decided in the board meeting, shares of I-Sec on Monday jumped nearly 11.34% intra-day and hit a 52-week high of Rs 647 before settling at Rs 626. The share price of ICICI Bank closed 0.38% up at Rs 927.
According to industry insiders, when ICICI Bank sold 25% of its shares in I-Sec five years ago, it needed to raise money to strengthen its balance sheet. Since the bank now has adequate capital, keeping the securities arm listed does not make sense anymore.
Moreover, as new players like Zerodha and others have shown, the securities business does not require much money for expansion. This is one of the reasons why peers like HDFC Bank or Axis Bank have not listed their securities arms.
In addition, the securities business is extremely volatile due to the market volatility. In comparison, the banking business is more stable and sound. For example, I-Sec shares have gone up by 15% in the past three years, whereas ICICI Bank’s shares have zoomed 250%.
“Given the macroeconomic situation, the possibility of banking stock doing better is high. Therefore, it is better for shareholders of I-Sec to have shares of ICICI Bank, which is a larger company with a stable stock price,” said an industry insider.
ICICI Securities reported a consolidated net profit of Rs 263 crore for the quarter ended March, down 23% compared to Rs 340 crore reported in the year-ago period.
According to Alok Jain, Smallcase manager & Founder of Weekend Investing, the brokerage industry has changed a lot and has become highly competitive. Specifically, since the emergence of zero brokerage firms like Zerodha and Angel One, they have severely impacted the prospects of full-service private brokers. From this perspective, the business is not doing well, and it has been consistently losing market share.
“The major holdings in the company are either with promoters or institutions. Very few retail investors hold shares. Their broking revenue has decreased due to low cash volumes. But they continue to diversify their business into the loan and general insurance segment. The exact reason will only be known after the board meeting,” said Rajesh Agarwal, head of research at AUM Capital.