IDFC to merge with its banking arm IDFC First Bank

IDFC First Bank on Monday announced the merger of its parent IDFC Ltd with itself in an all-stock transaction, marking another major deal in the Indian banking space days after the amalgamation of the HDFC twins. 

The boards of IDFC First Bank and IDFC have approved the reverse merger. While the bank did not provide the likely valuation of the merged entity, based on Monday's closing prices of the two companies on BSE, the valuation is Rs 71,767 crore. 

Fine print of IDFC-IDFC First Bank merger

Under the proposed reverse merger scheme, an IDFC shareholder will get 155 shares for every 100 shares she/he holds in the bank. Both stocks have a face value of Rs 10 each, IDFC First Bank said in a statement.

The share exchange ratio will result in a premium of about 20 per cent on the closing market price of the shares of IDFC vis-a-vis IDFC First Bank as of June 30, 2023.

"The merger is the last phase of IDFC's corporate restructuring and will help create a financial services provider that offers seamless delivery of services to customers. It will augment operational efficiency for the merged entity and create synergies for our shareholders," said IDFC Chairman Anil Singhvi.

The standalone book value per share of the bank is expected to increase by 4.9 per cent post-merger, as calculated on the audited financials as of March 2023, it said, adding as of June 2023, IDFC through its non-financial holding company, owned 39.93 per cent in IDFC First Bank.

IDFC First Bank's market capitalisation stood at Rs 54,311.48 crore at close today, after the stock rallied 3.2 per cent to Rs 81.94 on the BSE, while IDFC m-cap stood at Rs 17,456 crore after its counter rallied 6.3 per cent to Rs 109.10, taking the combined value to Rs 71,767 crore.

IDFC was an infra lender in the private sector space, and following its bigger peers like ICICI and IDBI, it also launched a banking subsidiary in 2015 -- IDFC Bank -- but could not make a mark as the other two could do.

Effective July 1, India Inc's biggest merger came into effect when the mortgage major HDFC merged itself with its banking arm in an all-stock deal valued at $40 billion. Post-merger, announced on April 4, 2022, HDFC Bank is the world's fourth most valued bank with $200 billion in valuation after JP Morgan Chase, ICBC of China and Bank of America. 

The new giant, fully owned by public shareholders with no promoter entity, has a balance sheet of close to Rs 33 lakh crore, with the assets alone sniffing at Rs 23 lakh crore and also the largest mortgage book with close to Rs 7 lakh crore of loans.

The merger will lead to simplification of the corporate structure of both entities by consolidating them and other subsidiaries into a single entity, helping streamline regulatory compliances, the companies said in separate but identical statements.

Like HDFC Bank, the merged IDFC First Bank will also have no promoter entity, but fully owned by institutional and public shareholders. 

The merger scheme is subject to all requisite approvals from the Reserve Bank, Sebi, Competition Commission, National Company Law Tribunal and stock exchanges, and shareholders of both entities.

The journey of IDFC till now

IDFC began as an infra lender in 1997. It got in-principle approval from the RBI to set up a bank in April 2014, and in October 2015, it launched IDFC Bank when on-tap licensing began, following which loans and liabilities of IDFC were transferred to the bank. 

In December 2018, it took over Capital First, a consumer and MSME-focused non-bank since 2012, and was renamed IDFC First Bank and became a full-service universal bank.

Since the merger, the bank built a deposit franchise that has grown 36 per cent annually since then and has reached Rs 1,36,812 crore as of March 2023. The bank has also increased its low-cost CASA ratio from 8.6 at the merger with Capital First to 49.77 per cent as of March 2023. The bank has 809 branches and runs 925 ATMs.

Its loan book stood at Rs 1,60,599 crore with a balance sheet of Rs 2,39,942 crore as of March 2023. 

The bank closed FY23 with a net income of Rs 2,437 crore, and its capital adequacy ratio stood at 16.82 per cent. Its gross NPAs stood at 1.65 per cent and net NPA at 0.55 per cent. Overall gross NPAs, including legacy infrastructure financing book, is 2.51 per cent, and net NPA is 0.86 per cent. 

"We now embark on the next phase of our growth journey towards our long-term vision, and the merger will create sustainable shareholder value in the years to come," said Sanjeeb Chaudhuri, Chairman, IDFC First Bank.

In a separate statement, IDFC also said its board approved the reverse merger with the bank, and said the composite scheme of amalgamation includes the merger of IDFC and IDFC Financial Holding Company with IDFC First Bank.

IDFC First Bank MD V Vaidyanathan said: "We have built a strong deposit franchise, digital innovation, customer-friendly products, strong capital buffer, growing profitability and high corporate governance".

(With inputs from PTI)