IDFC First Bank to merge with IDFC, makes India’s largest corporate deal

IDFC First Bank on Monday announced the merger of parent IDFC Ltd with itself in an all-share deal, marking another major deal in the Indian banking space days after the merger of the HDFC twins.

The Board of Directors of IDFC First Bank and IDFC approved the reverse merger.

While the bank has not provided the potential valuation of the combined entity, based on Monday’s BSE closing prices of the two companies, the valuation is Rs.71,767 crore.

Under the proposed reverse merger scheme, an IDFC shareholder would receive 155 shares for every 100 shares he owned in the bank. IDFC First Bank said in a statement that both the shares have a face value of Rs 10 each.

The share exchange ratio will result in a premium of approximately 20 percent on the closing market price of IDFC Shares against IDFC First Bank as of June 30, 2023.

IDFC Chairman Anil Singhvi said the merger is the final phase of IDFC’s corporate restructuring and will help create a financial services provider that offers seamless services to clients. It will increase the operating efficiency of the combined entity and create synergies for our shareholders.

Post-merger, the standalone book value per share of the bank will increase by 4.9 percent, as calculated on audited financial statements as of March 2023, adding that as of June 2023, IDFC will increase through its owned non-financial holding company. 39.93 percent in IDFC First Bank.

The market value of IDFC First Bank amounted to 54,311.48 crore rupees at closing today, after the share rose by 3.2 percent to 81.94 rupees on the Bahrain Stock Exchange, while IDFC mcap share settled at 17,456 crore after its corresponding price rose 6.3 percent to Rs 109.10, to take the combined total. worth Rs. 71,767 crore.

IDFC has been a private sector infrastructure lender and, following on from larger peers such as ICICI and IDBI, also launched a banking subsidiary in 2015 — IDFC Bank — but hasn’t been able to make a mark as the other two could.

From 1 July, India Inc’s largest merger came into effect when major mortgage company HDFC merged itself with its banking arm in an all-share deal worth US$40 billion. After the merger, which was announced on April 4, 2022, HDFC Bank is the fourth most valuable bank in the world at US$200 billion after JP Morgan Chase, ICBC of China and Bank of America.

The new giant, wholly owned by public shareholders with no promoter entity, has a balance sheet close to Rs 33 crore, with assets alone aspirating Rs 23 crore and also the largest mortgage book with nearly Rs 7 crore. loans.

The two companies said in separate but identical statements that the merger will simplify the corporate structure of both entities by consolidating them and other subsidiaries into a single entity, which helps streamline regulatory compliance.

Like HDFC Bank, the merged IDFC First Bank will have no promoter entity, but will be wholly owned by institutional and public shareholders.

The merger scheme is subject to all required approvals from the Reserve Bank, Sebi, the Competition Commission, the National Court of Companies Law and Stock Markets, and the shareholders of both entities.

IDFC started as an infrastructure lender in 1997. It got initial approval from the Reserve Bank of India (RBI) to set up a bank in April 2014, and in October 2015 launched IDFC Bank when spot licensing started, after which IDFC’s loans and liabilities were transferred to the bank.

In December 2018, it acquired Capital First, a consumer-focused, small and medium-sized non-banking company since 2012, renamed IDFC First Bank and became a full-service comprehensive bank.

Since the merger, the bank has created a deposit franchise which has grown by 36 per cent annually since then, reaching Rs 1,36,812 crore as of March 2023. The bank has also increased its LCA ratio from 8.6 on merger with capital first to 49.77 per cent As of March 2023. The bank owns 809 branches and operates 925 ATMs.

Its loan book was Rs.1,60,599 crore with a balance sheet of Rs.2,39,942 crore as of March 2023.

The bank ended FY23 with a net income of Rs. 2,437 crore, and its capital adequacy ratio stood at 16.82 per cent. Total NPAs were 1.65 percent and net NPAs were 0.55 percent. Total gross NPAs, including legacy infrastructure financing book, is 2.51 percent, and net NPAs are 0.86 percent.

“We are now embarking on the next phase of our growth journey towards our long-term vision, and the merger will create sustainable value for shareholders in the years to come,” said Sanjeeb Chowdhury, Chairman of IDFC First Bank.

In a separate statement, IDFC also said its board of directors has approved the reverse merger with the bank, and said the composite scheme for the merger includes the merger of IDFC and IDFC Financial Holding Company with IDFC First Bank.

“We have built strong deposit excellence, digital innovation, customer-friendly products, strong capital stock, growing profitability and high corporate governance,” said IDFC First Bank MD V Vaidyanathan.