The shareholding pattern is a crucial financial indicator that investors must consider prior to making any investments in a company. It provides insights into the distribution of share capital among different entities and reveals the percentage held by each entity.
Shareholdings are commonly divided into two primary categories - Promoters and Non-promoters/Public. Promoters are typically the individuals or organizations that establish and nurture the company, providing assistance, collaboration, and a safety net during difficult times. On the other hand, Non-promoters or the Public refer to individuals or organizations that are not part of the Promoters group. They usually acquire company shares through public offerings or the secondary market. Non-promoters can be broadly categorized as Foreign Institutional Investors (FIIs), Domestic Institutional Investors (DIIs), the general Public, and other entities.
Promoters typically maintain a significant ownership interest in the company and oversee all key strategic decisions. An increase in their ownership stake sends a clear positive message to the market and investors regarding the company's performance. Conversely, a decrease in their ownership stake conveys a negative signal about the company's performance to the market and investors.
Companies that possess a well-diversified shareholding structure are regarded as a more secure investment option for investors. A well-diversified shareholding structure typically consists of 55-70% Promoter holding, 20-30% FIIs & DIIs, and approximately 8-15% Public & Others. In accordance with SEBI guidelines, the Minimum Public Shareholding (FIIs + DIIs + Public + Others) should be at least 25% in every listed company.
The Shareholding Pattern of the Top 6 Indian Banks can be analyzed by comparing the Promoters' shareholding percentage. Upon reviewing the table provided below, it is evident that there is a stark contrast between the Promoters' shareholding percentage of the Top 3 public sector banks and the Top 3 private sector banks. While the Promoters' shareholding percentage is significantly high in the Top 3 public sector banks, it is almost negligible in the Top 3 private sector banks. Interestingly, HDFC Bank and ICICI Bank do not have any promoters at all.
Distribution of Ownership in the Top 3 Public Sector Banks:
The ownership percentages of promoters are significantly high in the top three Public Sector Banks in India. Specifically, it stands at 57.5% in SBI, 64.5% in Bank of Baroda, and 73.2% in Punjab National Bank. The Government of India serves as the promoter for all Indian Public Sector Banks. In accordance with regulations, the Government of India maintains a majority stake in any Indian Public Sector Bank and establishes all financial regulations for them.
Distribution of Ownership in the Top 3 Private Sector Banks:
Private sector banks are possessed by private companies or individuals. They are mandated to comply with the guidelines set by the Reserve Bank of India. HDFC Bank, ICICI Bank, and Axis Bank are categorized as the New Generation Private Sector Banks that received their licenses subsequent to India's liberalization policy. The ownership of promoters' shares is minimal at 8.22% in Axis Bank, whereas there are no promoters affiliated with HDFC Bank and ICICI Bank.
Should we avoid investing in banks that have low or no promoters? Companies without promoter holdings do not have any significant legal issues. Therefore, if other aspects of the company stock align with their investment criteria, investors can consider investing in these companies.
In October of 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI with two of its wholly-owned retail finance subsidiaries, ICICI Personal Financial Services Ltd and ICICI Capital Services Ltd, with ICICI Bank. Following this merger, ICICI Bank became a zero promoters holding bank. Similarly, in 2022, the merger between HDFC Bank and HDFC Ltd was announced. As part of this merger, HDFC Ltd. shares were delisted, and shareholders received 42 shares of HDFC Bank for every 25 shares of HDFC Ltd. The merger was officially completed on July 1, 2023, leading to the transformation of HDFC Bank into a diversified financial services conglomerate. As a result of this merger, HDFC Bank also became a zero promoters holding bank. Please be aware that these instances pertain to mergers and not to the reduction of stakes by the promoters in the bank.
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Data Source
- Company's website
- SEBI website
- Moneycontrol.com
Disclaimer
The content or analysis presented in the Blog is exclusively intended for educational purposes. It is important to note that this should not be considered as a suggestion for investing in stocks or as legal or medical advice. It is highly recommended to seek guidance from an expert before making any decision.