Corporate Takeover: Are we arm-twisting the Religare board to lie to the RBI?

By insisting that the Burmans are not “fit and proper” for acquiring a majority stake, the independent board of Religare has raised a tricky yet thorny issue in corporate India. It’s a thorny one because it projects the board as a stubborn entity that wields more power than accorded. It’s also tricky because the board has not divulged why the Burmans are not ‘fit and proper.’ Most board disclosures are available in courtroom discussions, which are yet to be accessed by journalists. Also, the lack of clear information has compelled everyone to agree with the street’s illogical inferences. Therefore, to some, it is a stalemate while others think it could be a mischievous enforcement of the board’s powers.

The board despite receiving harsh criticism understands well that history will be kinder to its apprehensions. The board also understands how unique its case is, and the wider ramifications it holds for India’s BFSI ecosystem. A closer and educated introspection of facts and premises suggests that the board is right in raising questions about Burman’s attempt to hold a majority stake. Core issues such as fraudulent motives, dishonest character, and the need to comply with RBI’s vision of a fraud-less NBFC system are central to the board’s principled stance. That even as the focal point in public discourse has been only about compliance with SEBI’s SAST (Substantial Acquisition of Shares and Takeovers) guidelines.

It is pertinent to note that the Dabur group operated a vehicle and medical finance business as early as 2000. This entity repaid its fixed deposits and shut down the business. Strangely, a FIU-IND investigation in 2018 found AVB Finance Limited (previously known as Dabur Finance) being classified as a high-risk NBFC. This unit, today has two directors who coincidentally also share common directorship in companies such as Burman Resorts, Burman Estate, Burman Buildcon, Burman Capital Advisors, etc…

RBI’s 2015-16 DNBR rules are rigid even for intra-group transfers of entities or for initiating a 30% change in directorship at an NBFC. Since NBFCs are considered shadow banks, the regulator intends to focus on clean corporate governance standards. It has so far managed to have promoters that are as clean as a whistle. To convince the RBI about the new promoter’s cleanliness,  however, the board will have to find and document more than just the motive – it will have to show the source of funds; zero criminal cases; and a detailed bankers’ report.

Criminal cases filed against Mr. Mohit Burman are already highlighted by the board. So, questioning the board why it is not approaching the RBI is a frivolous observation. Questioning the board for not supporting the takeover is akin to victim-shaming. Worse, it is pushing the board to persuade the RBI to approve the takeover. And, if only persuading the regulator by hook or crook is the sole objective of this takeover, the board has no recourse but to lie to RBI. To give credit to the Burmans, they already tried their luck with the RBI. The banking regulator politely declined them on 5th February 2024. Rather than questioning if the board is procrastinating, one needs to understand more from the cues and the regulator’s objectives. The Religare-Burman case sets a precedence. Sensing the urgency, the board has prayed SEBI to investigate the matter thoroughly. Because, if not the SEBI who else can investigate and deter financial crimes?

Much to the dismay of the board, the actions from the acquirer entity have cheered the carnal instincts of traders on the D-street. There is a popular perception that common synergies will add value to Religare. There is also a naïve logic that Religare will leverage Dabur’s strong sales network to sell more loans, insurance, and demat accounts. There is, reasonable efficiency in that logic but such a logic need not always percolate into a great business strategy. Rather, short-sighted logic has been the raison d’être of extinction for many businesses. To understand whether the takeover succeeds, one needs to examine its intended motives and benefits. For a takeover that results in a win-win situation for all, questions must also be asked of Mr Mohit Burman. How does he plan to clean his tarnished reputation? Reputation is everything in the banking industry. So much that the RBI will not allow tainted promoters to run the show at any bank or NBFC.