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IndusInd acquires Bharat Financial in Rs 15,000-cr deal

IndusInd announced it had entered exclusive talks with Bharat Financial in September

Nikhat Hetavkar  |  Mumbai 

Mergers&Acquisitions

on Saturday said it agreed to merge with Financial Inclusion (BFIL) for 639 of the bank’s shares for 1,000 shares of the microfinance company, effective January 1, as the two saw complimentary network, customers and products  focused on financial inclusion.

The swap ratio works out to be a 12.6 per cent premium to Financial shareholders over two-week volume weighted average price. Financial’s stock closed at Rs 1,003.45 a piece, while shares had closed at Rs 1,750.15 a piece on Friday. The deal size is Rs 15,486 crore.

The all-stock merger would have revenue synergies from day one, said in a statement.

In a conference call with analysts, the management explained the merger would benefit the through strong potential of livelihood loans, which generally have high yields and low delinquencies if managed properly. 

The is also betting on economic opportunities in rural India, as it is seeing strong wage growth, increased two-wheeler sales and an increase in government schemes. BFIN, a business correspondent of the for the past five years, can provide domain expertise in the rural business. 

There will be no change in the board of the bank, while the board of BFIN will sit as advisory committee to the wholly owned subsidiary. There will be no change in the reporting structure of Financial. 

The dilution of the promoter group owing to warrants would be 1.9 per cent. 

Following the merger, India’s second largest microfinance company Financial’s business correspondent operation will be made a separate wholly owned subsidiary of the However, all the assets and liabilities would sit on the books of the and all the employees of the microfinance firm will become IndusInd employees.  

The merger will add another Rs 10,000 crore from BFIL to the bank’s existing MFI portfolio of Rs 3,000 crore, Romesh Sobti, managing director of at a press conference. The deal will also bring down the microfinance company’s cost of funds by 3-4 per cent. He said the margin would remain the same and the benefit of lower cost of funds would be passed onto the customers. The overall risk weight of the combined loan book would drop to 75 per cent from 100 per cent now as MFI loans are priority sector. When risk weight comes down, capital is freed owing to less provisions. The expects rise in fee income of 1-1.5 per cent after the merger. 

Sobti added that the basic rationale behind the deal was “the deep belief of both the institutions in power of livelihood loans.” He also said the microfinance company can help them to participate in the huge growth story that is taking shape in rural Financial already has a reach of 11,000 villages and the power of this coverage has tremendous potential,” he added.

Financial has 1,408 branches across 347 districts, while IndusInd has 1,210 branches and 999 vehicle financial outlets. Post-merger IndusInd will have 3,600-plus banking points, the said. Some of the BFIN branches will convert into branches. While the has a customer base of 10 million, it will add another 6.8 million customers through the merger.

IndusInd Bank approves deal to buy Bharat Financial Inclusion
“The merger is expected to be value accretive from inception given IndusInd Bank’s lower cost of funds, ability to monetise excess PSL (priority sector lending) qualifying assets, efficient capital utilisation and optimal resource utilisation,” the said, adding Financial’s distribution network also offers large untapped deposit potential from rural and underserved areas, as well as catering to their banking needs.

Morgan Stanley and Arpwood Capital acted as financial advisors to IndusInd, while Credit Suisse advised Financial for the merger.

The deal is subject to approval from the Reserve of India, other statutory and regulatory approvals as well as approval of shareholders and creditors of both the entities. The said it would take up to 10 months to get all the approvals.

Sobti added that the maintaining a wholly owned subsidiary has precedence for regulatory approvals as well as maintain the existing functioning and ethos of Financial. M R Rao, MD and CEO, Financial, said that he was confident that BFIL shareholders would approve the merger.

IndusInd Bank approves deal to buy Bharat Financial Inclusion

First Published: Sun, October 15 2017. 00:00 IST
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