IDFC and Shriram Group have agreed on a month’s extension of the 90-day confidentiality, exclusivity and standstill (CES) agreement for evaluating a potential combination of certain businesses and subsidiaries/affiliates of the Shriram Group engaged in the credit and non-credit financial services sector with the IDFC Group.

In identical stock exchange notices, IDFC, IDFC Bank, Shriram City Union Finance (SCUF) and Shriram Transport Finance Company (STFC) said the extension of the agreement up to November 8 is in view of the extensive due-diligence process involved and the on-going discussions.

The CES agreement primarily provided for a mutually agreed 90 days exclusivity period from July 8, 2017, for due diligence and discussions between the relevant parties in relation to the proposed transaction.

As per the contours of the proposed merger, all the operating businesses of the respective groups will come together under the flagship group “IDFC Ltd.”

The retail consumer-centric business of Shriram Capital — SCUF — will absorbed into IDFC Bank. The transport finance business of Shriram Capital (STFC) will remain a standalone NBFC that would become a subsidiary of IDFC Ltd. The life and general insurance businesses will also become subsidiaries of IDFC.

In the right direction Edelweiss, in a research report, said strategically, the merger is in the right direction given that IDFC Bank was struggling with execution and growth and Shriram group, with the current retail asset base of over ₹1 lakh crore, had long term structural growth concern in the absence of a stable low-cost liability franchise.

“However, there could be near-term challenges with respect to execution, regulatory approvals, capital allocations, holding company discount, etc.

“...We believe IDFC Bank would be relatively better placed while Shriram Group would be in a compromising position. However, a lot would depend on swap ratios finally agreed upon between both the groups,” the report said.

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