IndusInd Bank and Bharat Financial Inclusion — a microlender — on Saturday announced they would merge in an all-stock transaction.
Under the deal, shareholders of Bharat Financial would get 639 shares of IndusInd Bank for every 1,000 held. This is a 12.6% premium over the last two weeks’ volume-weighted average price of Bharat Financial’s shares.
The assets and liabilities of Bharat Financial would move to IndusInd’s book and the entity would become a subsidiary of the bank, as a business correspondent. Bharat Financial had already been acting as a business correspondent for the bank.
“This model [merger scheme] has a precedent in terms of regulatory approval,” said Romesh Sobti, managing director and chief executive officer, IndusInd Bank while announcing the merger. The proposal requires regulatory approvals.
‘Livelihood loans’
Commenting that the deal is probably the largest merger and acquisition transaction in the microfinance sector, Mr. Sobti said, “The basic rationale [for the deal] is the very deep belief in both the institutions about the power of livelihood loans. Livelihood loans have two particular characteristics — they have higher yields and lower delinquencies.”
M.R. Rao, MD and CEO, Bharat Financial said, “Access to savings, deposits and other financial products for all our 6.8 million customers completes our financial inclusion offering.”
The deal ends Bharat Financial’s search for a banking partner. IndusInd, on the other hand, gains the microlender’s rural reach, which would help it mobilise resources. Formerly known as SKS Micro Finance, Bharat Financial has presence in one lakh villages in 347 districts.
Bharat Financial had unsuccessfully applied for a universal banking licence in the past.
The entire loan book of Bharat Financial would have priority sector lending (PSL) status when it moves to IndusInd’s book.
‘Value-accretive’
The merger would be value-accretive from ‘day one given IndusInd Bank’s lower cost of funds, ability to monetise excess priority sector lending-qualifying assets, efficient capital utilisation and optimal resource utilisation,’ according to the bank. The deal would also boost IndusInd’s capital position since the risk weight for loans extended by microfinance institutions are 100%, while for a bank, it is 75%.
The combined entity would have 16 million customers, 40,000 employees and a loan book of ₹1.26 lakh crore.
Bharat Financial has 1,408 branches while IndusInd has a network of 1,210 branches. Post-merger, IndusInd would have more than 3,600 banking points. Both expect the deal to be completed in 15 months.
