IDFC Bank, IDFC come a step closer to merger

IDFC Bank, the newest lender in the country, may be one of the biggest beneficiaries of the new on-tap banking licence rules as it could be allowed to merge with its parent.

After the draft guidelines of the on-tap universal banking licence were released, Rajiv Lall, founder, managing director and chief executive of IDFC Bank, had said the new rules would make it possible to merge both the entities. The lender had stated it was in talks with the regulator to explore the possibility of a merger. IDFC and IDFC Bank said in a joint statement the boards of both have not yet approved any final proposal for merger or reverse merger.

Both have not yet made any formal written application to the regulatory authorities, including Reserve Bank of India and stock exchanges. "We have not stated to the media that IDFC Limited is merging into IDFC Bank Limited," the statement said.

The guidelines state that the converting entities that do not have any other group entities do not need to have a non-operative financial holding company (NOFHC) structure.

Also, individual promoters or the standalone promoting company are not required to take the NOFHC route, according to the final guidelines.

"The formation of a Non-Operative Financial Holding Company (NOFHC) has been made non-mandatory if promoters are individuals, and standalone promoting or converting entities. In our view, while this positive for IDFC-IDFC Bank like structure, IDFC will have to apply for a special exemption since the rules don't permit retrospective change," said a Religare report.

IDFC has a NOFHC for the demerged IDFC Bank and other subsidiaries, IDFC Mutual Fund, IDFC Alternatives, IDFC Infrastructure Fund and IDFC Securities. As a result if the regulator makes an exemption and allow this NOPFHC structure to be applied retrospectively then IDFC will merge the different identities.

If this merger is approved, then it will be the second private sector lender to go through this drill. In 2002, ICICI Bank had also merged with its parent and created the then second largest bank in India.

In the April-June quarter, IDFC Bank has reported a 60 per cent rise in its net profit to Rs 265 crore, compared with the January-March quarter. The bank remains well capitalised with a capital adequacy ratio of 20.39 per cent.