Capital First, IDFC Bank merger gets RBI nod, to be completed in 5 months

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The Reserve Bank of India (RBI) on Wednesday gave its approval for Capital First Ltd.’s merger with IDFC Bank. The merger is expected to be completed in the next 4-5 months.

“After the RBI approval, now we have NCLT (National Company Law Tribunal) and shareholder approval that is pending…4-5 months is what we are expecting to get the NCLT process to go through. There are usual caveats in place and we are hopeful it will get through,” said V. Vaidyanathan, founder and executive chairman, Capital First, told Moneycontrol.

The banking regulator conveyed “no objection” for the voluntary amalgamation of Capital First, Capital First Home Finance and Capital First Securities with IDFC Bank, subject to compliance with the terms and conditions specified therein, the Mumbai-based non-banking financial company (NBFC) said in a statement to the exchanges.

The merger process remains subject to approval from the respective shareholders and creditors of the amalgamated company and the amalgamating companies, NCLT and other statutory and regulatory approvals, if any.

Apart from the RBI, the merger process has got approval from Competition Commission of India (CCI), National Housing Board (NHB), NSE, BSE and markets regulator SEBI.

The merger, first announced on January 13, will create a lender with a portfolio diversified across large corporate lending largely from IDFC Bank’s books and small and medium enterprise loans and retail portfolio, the strength of Capital First.

Vaidyanathan will succeed Rajiv Lall to be the chief executive officer and managing director of the merged bank, which is yet to get a new name.

Also Read: A dream come true for Capital First, but challenges ahead for Vaidyanathan

Shareholding pattern

As per the agreement, IDFC Bank will issue 139 shares for every 10 shares of Capital First. The assets under management (AUM) of the combined entity are pegged at Rs 88,000 crore.

In the merged entity, IDFC Ltd (holding company of IDFC Bank) will need to hold 40 percent as per RBI requirements. Under the current scheme of arrangement, IDFC Ltd’s stake in the merged entity will stand at 38 percent.

“Before the merger is consummated, as in, before the shares of swapped, they (IDFC) will have to buy from the market or any other route, maybe bilaterally,” Vaidyanathan said.

Capital First will not raise any fresh equity for the same.

The deal will allow IDFC Bank to grow its retail book, which it has been unable to do in the last two-and-a-half years since it started its banking operations.

On the growth ahead once the merger is complete, Vaidyanathan said, “Liabilities is what we will focus on, in the first phase…It’s just a starting up stage but the opportunity to grow is huge.”