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IDFC Bank buys Capital First

Mumbai: IDFC Bank, one of India's two newest banks, will acquire non-bank financial firm Capital First in a share swap deal valued at about $1.5 billion as it looks to boost its retail lending activities.

According to terms of the deal announced on Saturday, shareholders in Capital First will receive 139 shares of the bank for every 10 shares held. The deal is conditional on central bank and other regulatory approvals.

The deal values Capital First - owned more than a third by private equity firm Warburg Pincus - at Rs 938.25 a share based on the two companies' Friday closing price - a premium to Capital First's Friday closing price of Rs 837.50, or equal to a market capitalisation.

The deal is "pursuant to IDFC Bank's stated strategy of 'retailising' its business to complete their transformation from a dedicated infrastructure financier to a well-diversified universal bank", the two sides said in a joint statement.

Capital First's founder and chairman V. Vaidyanathan will become the chief executive of the combined entity, the statement said.

Managing director and chief executive officer Rajiv Lall will step into the role of non-executive chairman of IDFC Bank and guide the transition process.

He will replace Veena Mankar, who will remain on the board.

"The merger will bring two tech savvy, culturally aligned platforms together to create a diversified and fast growing universal bank with a national footprint,'' Lall said.

IDFC Bank - which was spun off from infrastructure financier IDFC Ltd in 2015 - is currently heavily reliant on wholesale lending.

Capital First, which also counts Singapore state investor GIC among its major investors, will bring in a loan book of almost Rs 22,974 crore as of September 30, three million customers and a distribution network spanning 228 locations across the country.

It has gross and net NPAs of 1.63 per cent and 1 per cent, respectively. Close to 93 per cent of its loan assets are in the consumer and MSME financing space.

Cloverdell Investment, an affiliate of Warburg Pincus, holds a little over 34 per cent in Capital First.

Post-merger, the combined entity will have assets under management of Rs 88,000 crore, profit after tax of nearly Rs 1,300 crore and a distribution network comprising 194 branches, 353 dedicated business correspondent outlets and over 9,100 micro ATM points apart from serving more than five million customers in the country.

IDFC Bank said the merger will also include two arms of Capital First that are into housing finance and advisory services & loan syndication.

The Capital First deal comes more than two months after IDFC and the Shriram group called off their merger.

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