Bandhan Bank said on Monday Gruh Finance would merge with it in an all-share deal valued at approximately Rs 81,800 crore based on the closing prices of shares of the two players. Shareholders of Gruh will get 568 shares of Bandhan for every1,000 shares held. The transaction helps lower the promoter stake in Bandhan Bank to 61% from 82%. This means the outstanding number of shares of Bandhan Bank will go up to close to 161 crore shares post the merger.
The transaction valued Gruh at 8% lower than its closing of Rs 306.2 per share on Monday, down nearly 4% over Friday’s close. Bandhan Bank closed Monday’s session at Rs 501.1 per share, down 5.21%.
Moreover, the merger will see HDFC Limited owning close to 15% in Bandhan Bank via its holding in Gruh Finance. Deepak Parekh, chairman, HDFC, explained that HDFC would need to apply to Reserve Bank of India (RBI) and await its response. “A non-bank can hold up to 9.9%, but the merger gives us little less than 15%. Even for 9.9%, we need RBI approval because only a 5% stake is automatic,” Parekh explained. As of now, HDFC owns 57.83% in Gruh Finance.
CS Ghosh, founder and CEO of Bandhan Bank, said there was much to be gained from the merger since Gruh Finance promotes affordable housing and Bandhan Bank can provide the loans.
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“The micro credit or unsecured portfolio will fall from the current levels of 86% to 58%, thanks to the presence of secured home loans in the combined portfolio. Also, the average tenure of the loans will also go up since Gruh loans tend to have tenure of three years whereas we give loans of one-year,” Ghosh said.
“We have 978 branches but we are primarily based in the eastern part of the country whereas Gruh has a big presence in the western region, so the geographical reach will improve,” Ghosh explained.
The swap ratio, analysts said, was slightly in favour of Bandhan Bank. RBI’s banking licence rules require the promoters of Bandhan Bank — Bandhan Financial Holdings — to lower its stake from 82.3% to 40% within three years of starting a business. The central bank had penalised the lender for failing to comply with the guidelines within the stipulated timeline by freezing branch expansion and remuneration of founder and chief executive.