The Securities and Exchange Board of India (Sebi) is unlikely to give any exemption to mutual funds if their schemes breach the investment limit in the case of the merged HDFC Bank.

It was in April last year that the reverse merger of HDFC into HDFC Bank was announced. The amalgamation is expected to be completed in July. Since both HDFC and HDFC Bank are widely held by mutual funds, the expectation is that several schemes will hold (in terms of value) more than what is prescribed by Sebi. They will have to unwind their excess holdings in 30 days.

According to Sebi norms, a mutual fund scheme cannot invest more than 10 per cent in a single stock. However, exchange-traded funds (ETFs) and thematic funds are exempt from this requirement.

Media reports said Sebi is unlikely to give special exemptions to mutual funds if they breach the rule for maximum permitted holdings in security after the merger of HDFC Bank and HDFC.

It added that in such cases, the market regulator could consider this overshoot as a “passive breach,” which meant no deliberate attempt at flouting rules.

While the funds will have 30 days to rebalance their portfolio, it can be extended by another 60 days.

While such a rebalancing or sale by mutual funds could lead to the HDFC Bank stock coming under pressure, observers feel that the private-sector lender is unlikely to see any major crash as retail investors and others could emerge as buyers.