HDFC Ltd-promoted Gruh Finance merges with Kolkata-based Bandhan Bank

After clearing all regulatory hurdles, Gruh Finance, the HDFC Ltd-promoted affordable housing finance, finally merged with Kolkata-based Bandhan Bank today. The merger of balance sheets is likely to take place on October 24th, when Bandhan Bank presents consolidated financial results. 

As on June 30, 2019, the total number of banking outlets of Bandhan was about 4,013. The network consists of 999 branches and 3,014 doorstep service centres. Gruh, on the other hand, has about 195 branches. 

Bandhan Bank announced the opening of 106 additional home loan distribution points today. Thus, in total, there would be about 301 Bandhan Bank Gruh Centres, which will cater to home loan distribution, according to an announcement by Bandhan Bank. 

Notably, Bandhan Bank has been increasingly trying to position itself as a universal bank, although close to 86 per cent of its portfolio is concentrated to microfinance. As on 30th June 2019, the bank’s total advances was close to Rs 45,420 crore. So far, its experiment with corporate loans had not been very encouraging. The bank has already burnt its fingers in IL&FS crisis and had to make provision of Rs 385 crore towards the loan.

After the merger, housing finance will be the second biggest vertical of Bandhan Bank after microfinance. 

Gruh’s total loan book was about Rs 17737 crore. Apart from diversification in terms of portfolio, the merger will help Bandhan Bank expand its geographical reach as most of its branches at present are in the east. On the other hand, Gruh’s presence is concentrated in the western part of India. 

“Microfinance will remain core area of competence for Bandhan Bank, with a focus on housing finance. It will take Bandhan about three to four years to balance out the portfolio. Despite the valuation of the deal with Gruh being on the higher side, it has been good for Bandhan Bank, as Gruh has been performing exceptionally well in the affordable housing space,” said   Paras Bothra, President of Equity Research - Ashika Group of Companies.

Under the proposed merger, 568 equity shares (of face value Rs 10 each) of Bandhan Bank will be issued for every 1,000 equity shares of Gruh (with face value Rs 2 each). According to last available data, the total market cap of Gruh Finance was close to Rs 23292 crore, while that of Bandhan Bank is close to Rs 67789 crore, taking the collective market cap to more than Rs 90000 crore. 

In January this year, the bank announced its merger with GruhFinance, the affordable housing finance arm of HDFC Ltd. The merger would also help the bank reduce promoter shareholding from nearly 82 per cent to 61 per cent. The bank is required to bring it down to 40 per cent to meet RBI norms.

In September 2018, Reserve Bank of India had directed Bandhan Bank a halt to any rise in Ghosh’s salary and also withdrew the bank’s right to open new branches on its own. This was a penalty for not having cut the stake, despite having got three years from the date it began operations to do so. The deadline ended on August 23 2018.