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The banking mergers and acquisition scenario has warmed up early in the new year with the announcement of the merger between IDFC Bank and Capital First.
A new relationship entered into a few weeks after the collapse of an earlier one is what may be called ‘love on the rebound’. This may perhaps be a case of second time lucky for IDFC Bank which had to pull out of its merger proposal with the Shriram group. Disagreements on valuation and the complications posed in merging listed and unlisted entities in the Shriram group as well as the objections voiced by institutional shareholders led to the deal being called off in early November after the proposal was announced in July 2017.
Hurdles to cross
While the two entities (Capital First and IDFC Bank) seem relatively more closer in size than the entities involved in the earlier proposal, it remains to be seen if the deal can cross all the hurdles – including regulatory as well as the problems of personality clashes that often bedevil mergers. The fact that this is a merger between an NBFC and a bank will have its own set of challenges. The two diverse sets of customers that they service may provide some complementarity, although this is an argument that was used at the time of the earlier proposal too.
Retail boost
IDFC Bank has been attempting to transform itself into more of an universal bank with retail focus rather than remain an infrastructure focused player over the past few years. It kicked off a smaller acquisition in 2016 by picking up a microfinance company (Grama Vidiyal Finance) to acquire 1.2 million new customers.
IDFC Bank’s MD and CEO, Rajiv Lall had set a goal of acquiring six million customers on board by March 2020. That number was fixed not only as an aspirational goal but also a way to reach the top four private bank slots in the country. The merger if it goes through, will help IDFC Bank get closer to that goal – it will have over 5 million customers on board. It already has about 2 million customers while Capital First brings with it a retail lending franchise with a loan book of nearly Rs 23,000 crore and a 3 million strong customer base that has been relatively strong in terms of asset quality. Gross and net NPA have been at 1.63% and 1.0% respectively for the company.
Post-merger, the combined entity of IDFC Bank and Capital First will have an AUM of Rs 88,000 crores; PAT of Rs 1268 crores (FY 17); and a distribution network comprising 194 branches (as per branch count of December 2017 of both entities), 353 dedicated BC outlets and over 9,100 micro ATM points.
It has been announced that Mr. Vaidyanathan, currently Chairman and MD of Capital First, will succeed Dr. Rajiv Lall as MD and CEO of the combined entity upon completion of the merger and necessary regulatory approvals. Post-merger Dr. Lall will step into the role of non-executive Chairman of IDFC Bank, subject to regulatory approvals, and guide the transition process. He will replace Ms. Veena Mankar who will remain on the Board.
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