Contrary to the then perception, Bandhan Financial Holdings Limited (BFHL) offloaded 20 per cent stake in Bandhan Bank to be compliant with RBI’s 40 per cent holding company shareholding norms. This resulted in ₹10,000 crore bounty for BFHL. Chandrashekhar Ghosh, MD & CEO of Bandhan Bank was quick to indicate his interest for shopping for an insurance or asset management business.

Two years later, BFHL along with its key investors — GIC and ChrysCapital, have paved the way for IDFC Asset Management Company (IDFC AMC) to become its subsidiary, shoulder to shoulder with Bandhan Bank, by acquiring the former at ₹4,500 crore.

IDFC AMC is skewed to debt funds which account for 75 per cent of its total mutual fund AUMs ( assets under management). Usually asking rate for a debt fund oriented portfolio is pegged at 2-3 per cent of AUM as per industry standards.

BFHL will pay 3.6 per cent of the ₹1.25 lakh crore AUM of IDFC for the deal, which seems higher. But this valuation is lower than recent deals such as Sundaram AMC’s purchase of Principal MF ( 4.5 per cent of AUM) and HSBC AMC’s acquisition of L&T MF ( 4 per cent of AUM). Both the selling fund houses had bigger AUMs in equities.

Unmet objective

Had this deal happened five-six years ago, it would have been more favourable, because the business dynamics were compelling enough for banking companies to function as a full-suite financial services entities as it helped ring-fencing its customers. Today the landscape has changed and so are the requirements for Bandhan Bank.

Whether banking products or saving products, competition from fintechs’ is increasing. They can no longer be regarded as mere digital distributors of financial assets.

From that standpoint, Bandhan Bank would have benefitted if its parent went shopping for a mid-sized fintech outfit which may help it bolster its digital presence. Otherwise, like the Gruh Finance acquisition, the bank would have gained if a mid-to small sized portfolio of vehicle finance or small business loans (both complementing its current customer profile) was added.

Bandhan Bank remains a microfinance dependent outfit and the diversification of its loan book should be its top priority. BFHL’s acquisition of IDFC AMC doesn’t help this cause. Therefore, the immediate gains for Bandhan Bank is restricted to higher fee income by distributing the AMC’s products. But this income source is already accruing to the bank as it’s a bancassurance partner for HDFC Life and Bajaj Allianz to name some.

The lack of synergies from the deal is reflecting on Badhan Bank’s stock price which is up by just over 1 per cent and has barely reacted in the last two days when the rumours around the deal was ripe.

Also, given that BFHL has to further reduce its stake in the bank over years, IDFC AMC acquisition doesn’t help on that front too.

Internal fight

There’s another angle to consider. IDFC AMC is predominantly a debt-oriented fund house, products of which are seen cannibalising to bank’s fixed deposits.

Bandhan Bank is still in the early days of growing its deposits base, whether term deposits or CASA (current account – savings account) deposits. While both IDFC AMC and Bandhan Bank will be independent entities under BFHL, the decision to grow one business could be counterproductive for the other. Given how debt funds have a track record of beating FD returns, the bank needs to watch out.

Therefore, considering these concerns, its early to comment if BFHL’s acquisition of IDFC AMC could be a long-term positive.

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