IDFC-Shriram group merger will not give Piramal back door entry: Vinod Rai

Vinod Rai, non-executive chairman of IDFC, is clear the proposed merger with Shriram group will not provide a back door entry for Ajay Piramal in the entity to hold more shares in the bank than the regulations provide for.

The former Comptroller and Auditor General of India told Business Standard, “The Reserve Bank of India (RBI) will not allow for any backdoor changes to its regulations. I am clear on that.” On Saturday, IDFC and Chennai-based Shriram group announced they have entered a 90-day period of exclusive talks to work on a merger.

Under the tentative arrangement, IDFC will be the holding company of the merged entity; Shriram City Union Finance, the retail lending arm of Shriram Capital, will be merged with IDFC Bank, while Shriram Transport Finance will be a fully-owned subsidiary of IDFC, which will also own 75 per cent of the life and general insurance arms of Shriram Capital.

A key issue in this context will be the stake Ajay Piramal, chairman of Shriram Capital, will end up holding in IDFC Bank. Though it will take time for the share ratios to be decided, analysts expect Piramal’s stake in the bank to exceed 5 per cent. Under the RBI rules, no entity can hold more than that in any bank, without obtaining a prior permission from the regulator. It is meant to curb creeping acquisition in the sector by any entity, as this change in shareholding could become a regulatory hazard.
 

“The RBI rules are very clear. I cannot discuss any detail at this point but there will be a roadmap, which will be fully in consonance of the regulatory concerns,” he said.