IndusInd Bank on Saturday confirmed its acquisition of microfinance institution Bharat Financial Inclusion after over a month of exclusive merger arrangement.
The share exchange ratio for the merger will be 639 equity shares of the bank for every 1,000 equity shares of Bharat Financial, the management of both the companies announced after the bank's board meeting on Saturday.
This implies a premium of 12.6 percent to Bharat Financial over a 2-week volume weighted price, the bank said in a statement. As per this, deal comes to a valuation of approximately Rs 15,600 crore (USD 2.4 billion) to make IndusInd the second largest MFI bank after Bandhan Bank.
Bharat Financial, formerly known as SKS Microfinance, is the only listed microfinance player. On September 11, IndusInd and Bharat Financial had entered into an exclusivity agreement to evaluate the merger scheme.
"The premium paid is for the value add and the synergies Bharat Financial brings to us.The synergies happen from day one. It builds the priority sector book and the cost of funds reduces by 3-4 percent from day one," said Romesh Sobti, MD and CEO of IndusInd Bank.
Sobti added that the bank will take the lead in passing on the reduced costs to customers' lending interest rates.
M.R. Rao, CEO of Bharat Financial said: "We will start reaching out to shareholders and are confident to get them on board. All our employees (10,000) will get absorbed in the bank."
The bank's micro loan book will rise by Rs 9,500 crore from the current about Rs 2,800 crore to build a book of over Rs 12,000 crore.
The deal was closed after months of potential discussions with many players including RBL Bank and Kotak Mahindra Bank.
IndusInd Bank said that the “business correspondent business” would be transferred as a going concern from the bank to a wholly-owned subsidiary on a slump-sale basis.
This means that while the assets and liabilities of Bharat Financial will be merged with the bank, the distribution infrastructure will function separately through the wholly-owned subsidiary, Sobti explained. This is similar to the strategy followed by the bank when it acquired Ashok Leyland Finance.
Bharat Financial's senior management continues to remain in the wholly-owned subsidiary under the same name.
Separately, the board of the bank also approved the issue of warrants to the promoters to ensure that they retain a 15 percent shareholding in the merged entity, which otherwise would have seen equity dilution of 1.9 percent with the merger.
The merger will allow IndusInd to increase its customer base and deepen its reach in unbanked and underserved regions of the country. IndusInd stated that merger will provide "access to business correspondent services to deepen the reach and widen the delivery mechanism of banking service while simultaneously ensuring compliance with RBI’s (Reserve Bank of India) regulatory framework".
As per RBI’s priority sector lending norms, scheduled commercial banks in India are required to provide at least 40 percent of their credit to priority sectors which include agriculture, micro enterprises and weaker sections of the society.
Post this merger, IndusInd Bank's priority sector lending reaches 50
percent from 42 percent currently.
Sobti said this will help them sell this excess 10 percent as Priority Sector Lending Certificates (PSLCs) to other lenders and earn a fee of 1.5-2 percent on it.
The bank will absorb the microfinance player's 1408 branches across 347 districts along with its 10,000 employees.
The merger deal is subject to approvals from the RBI, Securities and Exchange Board of India (Sebi), National Company Law Tribunal (NCLT), Competition Commission of India (CCI) and shareholders among others.
This approval process should be completed in 8-10 months period, Sobti said.
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