Mumbai, Oct. 14: Private lender IndusInd Bank Ltd today agreed to buy Bharat Financial Inclusion Ltd (BFIL) in an all-share deal for close to Rs 15,500 crore ($2.4 billion), boosting its presence in microfinance lending and rural banking.
While IndusInd is the sixth largest private sector bank by assets, BFIL is the country's second largest microfinance company. Last month, both the entities had initiated talks to explore the possibility of a merger.
This will be first ever merger of a microfinance firm into a bank in the country and a test case for other such mergers in future.
IndusInd will give Bharat Financial's shareholders 639 of its shares for every 1,000 shares they own in the microfinance lender, both companies said in a joint statement.
The deal values Bharat Financial at Rs 1118.47 a share, an 11.4 per cent premium to the stock's Friday closing price of Rs 1,004.
While there will be a reduction in the cost of funds for BFIL immediately upon the merger, IndusInd Bank will also stand to gain as BFIL's portfolio (that will come to its fold) is treated as priority sector lending, Ramesh Sobti, managing director & CEO of IndusInd Bank, said while speaking to reporters after the boards of both the entities gave their approval to the merger.
IndusInd Bank is looking to monetise (by issuing priority sector lending certificates) the surplus amount of priority sector lending.
Further, IndusInd Bank will gain from the BFIL's large presence in under-banked areas of the country.
The latter will bring around 1400 outlets and also add 6.8 million customers to IndusInd Bank's present base of around 9.5 million.
The merged entity will have over 3600 branches. These include IndusInd Bank's 1210 branches and another 1000 vehicle finance outlets.
Sobti said none of the over 15,000 BFIL employees will be displaced due to the merger.
He pointed out that the key rationale behind the merger was the rural India growth story. Even as there is huge potential for "livelihood loans", this segment is also characterised by higher yields and low delinquencies.
As of June 30, the combined loan book will stand at Rs 1,26,038 crore of which around Rs 10,000 crore will come from BFIL.
IndusInd Bank expects that the latter's distribution network will offer large untapped deposit potential from rural and underserved customers as also for their emerging banking needs.
"Access to savings, deposits and other financial products for all our 6.8 million customers completes our financial inclusion offering. With IndusInd we will have the advantage of deriving the benefit of a large universal bank from day one. Our network, client base and last-mile customer access to 100,000 villages are unique. We are excited with the possibilities the merger will bring," M.R. Rao, managing director and CEO of BFIL, said.
The deal is subject to the approval of the Reserve Bank of India, the Competition Commission of India, the Securities and Exchange Board of India among others.
The scheme contemplates merger of Bharat Financial with IndusInd and simultaneous transfer of BFIL's Business Correspondent operations into a wholly owned subsidiary of the bank, which will be incorporated after the receipt of requisite regulatory approvals, the joint statement said.
