IndusInd bank has entered into an exclusivity agreement with Bharat Financial Inclusion Ltd to evaluate a possible merger between the two companies. “The company has entered into an exclusivity agreement with IndusInd Bank for agreeing to have an exclusive discussion with IndusInd Bank about the proposed potential strategic combination by way of amalgamation through a scheme of arrangement, or any other suitable structure,” Bharat Financial Inclusion said in a regulatory filing this morning.
In conversation with CNBC TV18, Romesh Sobti, the MD and CEO of IndusInd bank said, “The exclusivity agreement signed this morning should lead to a definitive agreement soon, which will incorporate issues such as pricing and swap ratio.” Romesh Sobti declined to comment on the pricing as it is part of the definitive agreement and has to be approved by the board.
According to the ET Now, the swap ratio is likely to be set at 1.5 shares of Bharat Financial Inclusions for every one share of IndusInd bank. The implied price is likely be set at 10-12 per cent premium over the prevailing market price of Bharat Financial Inclusion, ET Now had said earlier.
As the due diligence by both the companies is yet to conclude, the deal may take up to a month, Romesh Sobti said. It’s a substantial agreement between the parties, which means that none of them can walk off from the deal. He also told the channel that it is going to be an all-swap deal.
Speaking about the synergies for the companies, he said, “As far as Bharat Financial is concerned, they become a bank. Therefore, that gives a huge boost to the cost of liabilities, which means there’s a massive pricing differential in terms of cost of funds in the bank, which runs into 100 basis points lower.”
M R Rao, MD & CEO Bharat Financial Inclusion told CNBC TV18 that the cost to income ratio could fall below 40%, as the bank becomes tech-savvy. Further, he believes that the merger will help in adding more products. The veteran assured that nothing will change at the consumer touch points.
In an interview to CNBC TV18, Deven Choksey, MD of KRChoksey Investment Managers said, “I think we will have to wait and see how this particular integration of business makes sense for IndusInd.” The expert said that the cost of lending for micro-finance companies are unsustainable.
There have been a slew of deals between private sector lenders and MFIs as the former eye to expand their network in the hinterland which will help them meet the priority sector lending mandates and offer cross-sell opportunities.