Private-sector lender IDFC Bank and Capital First, a leading provider of debt to micro, small and medium enterprises and retail consumers, on Saturday said the two companies have agreed to merge their businesses to create a combined entity with assets under management of Rs 88,000 crore and a customer base of 50 lakh. The scheme of amalgamation, to be effective from April 2018, requires IDFC Bank to issue 139 shares for every 10 shares of Capital First, the two companies said in a joint statement. The arrangement, which is subject to regulatory and shareholder approvals, implies a discount of about 12% to IDFC Bank’s valuation, based on its market capitalisation of Rs 23,019 crore on Friday. Following the arrangement, existing shareholders of IDFC Bank and First Capital will retain ownership shares of about 71.2% and 28.8%, respectively.
After the merger, V Vaidyanathan, chairman and managing director of Capital First, will succeed Rajiv Lall as the MD and CEO of the combined entity. Rajiv Lall will step into the role of non-executive chairman of IDFC Bank and guide the transition process. He will replace Veena Mankar, who will remain on the board. The announcement is pursuant to IDFC Bank’s stated strategy of ‘retailising’ its business and transforming into a well-diversified universal bank and in line with Capital First’s stated intention and strategy to convert to a universal bank, the two companies said. “A banking platform provides a stable diversified liability base and is critical for building a large franchise. We are excited about this merger because IDFC Bank provides a perfect platform for continued growth of the combined franchise, supported by low-cost funding,” Vaidyanathan said.
First Capital has been keen to expand its retail and micro-lending business, and for this it was keen to acquire a means to access a large retail deposit base, and through IDFC Bank it is likely to be able to access such low cost funds. For IDFC Bank, which in October 2017, had called off a proposed merger with Shriram Group due to disagreements over the structure and valuation of the deal, this arrangement offers it deep knowledge of consumer business, which is important for it to leverage the banking licence it acquired in 2015. The bank till date has seen its loan book skewed towards infrastructure and institutional lending. It also hasn’t been able to build out the retail liability (read deposits) business aggressively enough. IDFC Bank’s asset quality is also of a poorer quality than that of Capital First and a combined book will make the consolidated numbers look much better.
The proposed arrangement, therefore, brings together complimentary skills of the two players. Capital First’s housing finance arm and advisory & loan syndication company are also part of the amalgamation programme.“We believe this merger will be transformational for IDFC Bank. It will bring two tech savvy, culturally aligned platforms to come together to create a diversified and fast growing universal bank with a national footprint, in a manner that will be value accretive for all shareholders,” Rajiv Lall said. Post-merger, the combined entity of IDFC Bank and Capital First will have a net profit of Rs 1,268 crore (as per data reported for FY2017) and a distribution network comprising 194 branches (as per branch count of December 2017 of both entities), 353 dedicated business correspondent outlets and over 9,100 micro ATM points. Capital First brings with it a loan book of Rs 22,974 crore (September 2017), a customer base of 30 lakh and a distribution network in 228 locations across the country. IDFC Bank had a customer base of 20 lakh and 100 branches. Vaidyanathan founded Capital First through a management buyout of an existing listed NBFC by securing equity backing from Warburg Pincus of Rs 810 crore. The market capitalisation of Capital First has grown ten-fold since the buyout, from Rs 780 crore on March 31, 2012 to over Rs 8,000 crore at present. “A merger with the IDFC platform that has been built by Rajiv and his team creates a powerful combination. We are excited about the opportunity to be part of something special here, and look forward to supporting Vaidya and the teams at Capital First and IDFC Bank as they grow the platform into a leading banking institution in the country,” said Vishal Mahadevia, head, Warburg Pincus India.
SC crisis: Resolve internally is consensus
“There is no need for outside intervention to solve the matter because it is a matter (that) occurred within an institution. Necessary steps would be taken by the institution itself to sort it out,” justice Joseph said, when asked if outside intervention was required to solve the matter. The Supreme Court Bar Association in Delhi passed a resolution saying the differences of the four judges should be considered by the full bench of the apex court. Association president and senior advocate Vikas Singh said all PILs should be looked into either by the CJI or senior judges who form part of the apex court collegium. The Bar Council of India formed a seven-member team to meet all judges of the Supreme Court, barring the five seniormost judges, to discuss the present crisis in the apex court. It passed a resolution saying no political party or leaders should take undue advantage of the situation arising out of the press conference by four senior Supreme Court judges, chairperson Manan Kumar Misra said.