The RBI yesterday announced that they would be putting banking licences on tap. Rajiv Lall, MD & CEO of IDFC Bank says that this is a welcome development from the RBI. He also expects reverse merger with IDFC Bank to benefit the shareholders.Nidesh Jain of Investec Capital Services spoke about the reverse merger among other things. He said Bajaj Finance & Bajaj Finserv are big beneficiaries among NBFCs. Regarding the merger he said that IDFC could benefit from collapsing of the holding company structure.
Below is the verbatim transcript of Nidhesh Jain’s interview to Ekta Batra & Anuj Singhal.
Ekta: Your sense, do you think banks such as IndusInd Bank would be interested in Bharat Financial Inclusion and whether that would be a good lucrative merger?
A: IndusInd Bank will be interested in SKS Microfinance in particular or not, is difficult to say. However, two data points - one, IDFC has recently acquired a microfinance company. IndusInd Bank has been saying that they are very bullish on microfinance and they plan to increase their microfinance book to Rs 10,000 crore odd. SKS has a book of at least that number by the end of this year. So you can connect the dots. It is difficult to say right now.
Anuj: The problem is pricing because Bharat Financial has moved to a price to book a 4.5–5 times, IndusInd is at 3 times. Do you think that could be a hurdle?
A: Pricing is definitely on the higher side if you look at the acquisition which IDFC has done. The pricing was in the range of two-three times price to book. Other acquisitions in the space which Manappuram Finance has done recently has also been significantly lower than the level at which SKS is trading at. However, one needs to understand that SKS has a scale; their business is much more developed and their return on equities (RoEs) are upwards of 25 percent. So, if you look at from a safe swap ratio, I don’t think there could be significant hurdle on account of pricing. However, definitely it needs to be seen that at what price, if they are willing to acquire SKS.
Ekta: What is the holding company discount between IDFC and IDFC Bank right now?
A: Holding company discount used to be around 60 percent in IDFC Limited. However, post the last announcement of draft regulation on tap licences, the discount has come up quite significantly. Right now I think the discount is around 20 percent. So still 20 percent differential is there which will get culminated when the actual event happens. However, the major discount has already come off.
Ekta: What is the likelihood of this structure being eased according to you for IDFC and IDFC Bank?
A: There is now a high likelihood of that happening because if you look at the final guidelines, there is a clear mention that holding company structure is not required in case of new bank. So, only in case when the group company which is applying for a bank then there is a way for holding structure. However, in case of IDFC that hurdle will not be there. So, there is a high likelihood of that happening that they may collapse the holding structure and may realise some value for shareholders.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
