Money & Banking

Merger of Capital First should be through by October, says IDFC Bank MD

K Ram Kumar Mumbai | Updated on January 18, 2018


The merger will give us the runway to build a first-rate bank: Rajiv Lall

In a little over two months after its bid (along with its parent) to acquire relevant financial services companies of the Shriram Group did not work out, IDFC Bank announced last weekend that it will take over non-banking finance company Capital First. This is the second acquisition by the private sector bank — in 2016 it had acquired Grama Vidiyal Micro Finance — aimed at retailising and diversifying its operations. Emphasising that Capital First was always on his radar, IDFC Bank MD and CEO Rajiv Lall, in an interview to BusinessLine, said the acquisition became feasible after the NBFC’s ownership structure changed with Warburg Pincus significantly cutting its stake. Excerpts:

You seem to be a CEO in a hurry...

As they say in Hindi, ‘ Shubh kaam mein der nahin karni chahiye’ (There should be no delay in doing auspicious work). So, in this very fast-moving world, opportunities are more ephemeral and they don’t come by all that often.

I think one of the important skills that one needs to develop in a very competitive and fast-moving business environment is to be able to make haste slowly. So, you have to be decisive but you have to find the right balance and not be reckless. That is the key.

You don’t have time now for analysing ad nauseam. You have to rely on judgment, gut, some solid analysis but then, you know, make a decision all things considered. So, I try to live that credo. Sometimes I get it right, sometimes I don’t. So, that’s what it is.

Why this tendency to woo promoters of financial intermediaries — Grama Vidiyal, Shriram Group and now Capital First (V Vaidyanathan, Founder and Executive Chairman) — from the South?

(Laughs out loud) It is completely fortuitous. There is no design in it at all. But, you know, it is a great thing for national integration…So, things work when there is complementarity. And so, it could be that subliminally, subconsciously, there is a certain complementarity that presents itself in this conversation and that is what, in fact, is happening.

What went through your mind when the transaction with the Shriram Group did not fructify?

It is over. I have been very transparent about it. I mean what went through my mind, you know, goes back again to the thing about making haste slowly, moving forward but not being reckless. So, the Shriram transaction was a conversation that had some very compelling logic to it. It also had more than its share of challenges.

But we were very clear through the process that we had to be disciplined about how we approach it — that it was not a conversation that we were going to consummate at any cost or at any price. So, yes, it made sense at many levels. It was also challenging at many levels.

So, that balance between opportunity and challenge made sense at a particular value. And if we were not going to get an agreement on that value, then we have the courage and discipline to say ‘look, it doesn’t work’. So, honestly, it was a combination of relief and disappointment, in equal measure, when that deal did not happen.

And because disappointment and relief were in equal measure, that gave me, I suppose, the equanimity to say ‘okay, what are the alternatives?’

When did Capital First appear on your radar?

It is not as if I had not thought about Capital First before. We thought about it. This is what I meant when you said ‘I am in a hurry.’ But, you know, there is a method to it. When I looked at all the possible options quite carefully, Capital First was very much on the list.

But at that point its ownership structure was not such that a deal could be contemplated. Because Warburg Pincus was a very large shareholder and at any reasonable valuation the merger would have ended up in a structure which the Reserve Bank of India would not have approved.

Again, the reality is that we may think we are very able people, etc, etc. But life tells you otherwise. You have to be very lucky in life. So, this (deal) was somewhat providential, as it turns out. I don’t remember when exactly, but around September-October, Warburg Pincus sold a significant chunk of its stake (in Capital First) such that around this time the exclusivity period with Shriram Group was coming to an end.

This deal (with Capital First) actually became technically feasible. And so, I didn’t have to do too much work on analysis around it and say ‘Oh! this was on my list, now it is feasible, let us examine it.’ So, that is how I called Vaidya (V Vaidyanathan) and the rest is ‘history in the making’. Culturally, strategic business-wise, obviously, this is the best fit for us.

So, is Capital First a better bet than Shriram group?

Like I keep saying, a deal that doesn’t get done is not a good one. So, in that sense and in other ways, I think, this is really a good deal. I really believe it will be good for the shareholders of IDFC Bank as well as IDFC. And again, as they say in Hindi ‘Jo hota hai acche ke liye hota hai’ (Whatever happens, happens for the good), and I hope this is how it turns out.

By when will the merger be completed?

Our lawyers are telling us in 9-10 months, because we have to seek regulatory approvals from the RBI, Securities and Exchange Board of India (SEBI), Competition Commission of India (CCI) and the process has to be navigated through two National Company Law Tribunals (NCLTs) in parallel — for us in Chennai and for them in Mumbai.

So, I am hopeful that by October, which would be IDFC Bank’s third anniversary, we will have this deal consummated.

When will the integration of people and processes begin?

Once CCI gives its approval, then we can start working on integration, plans and such like. Till then we cannot really work formally with the other party. It is not as if one has not thought about people and integration challenges. There again the problem would appear to be very manageable because of the complementarity of the two organisations. …

All this is mirrored in the support functions and so we believe that (actually even Vaidya has been very clear about it) as far as people are concerned, nobody in either organisations need to fear. This (combined entity) will be a rapidly growing platform. So, we will be hiring people, not laying off anybody.

Will your bank become a ‘complete’ bank after the merger?

A bank takes time to build. So, I don’t think this is the end of the journey by any means. We will have an extremely strong foundation now, which gives us the runway to build what I believe will be an absolutely first-rate bank. So, we have our work cut out.

Where do you see the merged entity, going ahead?

We believe (Vaidya and I) that there is a huge opportunity for growth for private sector banks in the country. So, I don’t personally think that 20 per cent year-on-year growth is going to be a challenge. That is something we will do. That is something Vaidya will do for us.

Published on January 16, 2018

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