The IDFC group and Shriram group have entered into an exclusive and ‘standstill’ agreement to evaluate the possibility of merging the two entities in which Shriram City Union Finance (SCUF) — a non-banking finance company with assets under management of ₹23,000 — will be merged into IDFC Bank while the other entities will come under IDFC Ltd., the holding company of the bank.
The merged entity may be named IDFC-Shriram Bank, an official, who did not wish to be identified, said.
‘Standalone NBFC’
Shriram Transport Finance, the flagship of the Shriram group which manages assets worth ₹80,000 crore, will continue as a standalone NBFC under IDFC Ltd., Rajiv Lall, MD and CEO, said in a press conference.
Shriram Transport, with a market cap of ₹25,000 crore, will be de-listed if the deal goes through, Mr. Lall said. The insurance ventures of the Shriram group will also be a part of IDFC Ltd. “The proposed potential combination would be subject to due diligence, statutory/regulatory and other third-party approvals,” IDFC Ltd. said in a statement. All operating businesses of both groups will come under IDFC.
The discussion over the next 90 days will decide the final contours of the deal including swap ratios and what Ajay Piramal’s, the chairman of Shriram Capital, stake in the bank and at the holding company level would be and whether he would have a board seat in IDFC Bank.
“The brand name Shriram will continue,” Mr. Piramal said. “Apart from that, Shriram Transport will be there.”
On the merger, he said the idea was to create a mass retail financial conglomerate.
Piramal Enterprises Ltd. (PEL) owns a 10% stake in both Shriram Transport and SCUF, and a 20% stake in Shriram Capital. “The merger dynamics would need to ensure that PEL’s stake in IDFC Bank remains below 5%,” HSBC said in a note.
Mr. Lall said it was the complementary relationship that prompted the talks. “While IDFC started as a wholesale lender, Shriram focusses on retail assets.”
He said it would take at least a year to close the transaction after approvals are received. “Full integration will take at least two years.”
On the reason behind not merging the transport finance business, the bank management said as per norms, IDFC Ltd. had to hold 40% stake in the bank till October 2018, which would be difficult if Shriram Transport Finance merged with the banks.
Also, such a step would mean additional statutory liquidity ratio for the bank. Shriram Capital had applied for a full banking licence the last time RBI opened the gates in 2013.
However, they wanted to continue with the the transport finance NBFC and not merge it with the bank — a position not favoured by the RBI. “If it is not going to benefit all shareholders, we will not pursue it,” R. Thyagarajan, founder of Shriram group said.
