Mumbai, Sept. 11: IndusInd Bank has entered into merger talks with microfinance firm Bharat Financial Inclusion Ltd (BFIL). The move will help the country's sixth-largest private lender by assets to increase its reach, while BFIL will be able to fulfil its long-cherished desire of entering the banking arena.
BFIL, formerly SKS Microfinance, had a customer base of 68 lakh and a loan portfolio of Rs 7,709 crore as on June 30.
In a communication to the stock exchanges, BFIL said it had entered into an exclusivity agreement with IndusInd Bank "for agreeing to have an exclusive discussion about the proposed strategic combination by way of amalgamation through a scheme of arrangement, or any other suitable structure''.
"The agreement provides for a mutually agreed exclusivity period for due diligence and discussions to evaluate a potential strategic combination between the company and BFIL," IndusInd Bank said.
Both, however, did not elaborate on the duration of the exclusivity period. The buzz, however, is that it will be for 3-4 weeks.
With both the companies listed on the stock exchanges, market observers said any merger would be through a share-swap transaction.
The bourses welcomed the announcement with the shares of both IndusInd Bank and BFIL attracting interest. IndusInd ended with gains of 5.56 per cent, or Rs 94.25, at Rs 1,790.65 on the BSE, while the BFIL scrip closed at Rs 967.25, up 3.34 per cent.
The announcement comes two months after private lenders IDFC Bank and Shriram Capital agreed to examine a merger to create one of the country's largest retail banks, which could be valued at over Rs 65,000 crore.
Analysts said any transaction would be mutually beneficial. IndusInd Bank will gain access to BFIL's customer base that will open up cross-selling opportunities and generate fee income through priority sector lending certificates (PSLCs).
PSLCs are instruments that enable banks to meet their priority sector lending target. Lenders who are not able to meet the target can buy these instruments from banks that have surplus.
If the transaction is finalised, it will allow BFIL to mobilise cheaper funds.
"We believe IndusInd Bank will reap significant synergistic benefits from the merger wherein it will have access to BFIL's loan book with strong local know-how and a fully priority sector lending compliant book. For BFIL, the pact entails elimination of political risks and paves the way for better leverage, no cap on lending rates and funding cost benefits," Edelweiss Securities said in a note.
The brokerage expects a swap ratio of around 1:1.7, that is one share of IndusInd for every 1.7 shares held by BFIL shareholder.
