Will there be regulatory hurdles for Shriram Group merger with IDFC Group?

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Shriram Group and IDFC Group have entered into an exclusivity arrangement for a period of 90 days to explore a merger between the two entities to create an almost $10 billion financial powerhouse. While they have three months’ time to devise a structure for the deal and later get board approval, questions are arising on the potential regulatory hurdles that the merger may face.

Under the deal structure, all the operating businesses of the group will come under IDFC Group. While the retail centric business will be absorbed directly into IDFC Bank, Shriram Transport Finance will remain a standalone entity but will be under IDFC.

According to the rules of Reserve Bank of India (RBI), a holding company cannot have a non-banking financial company as well as a commercial bank under one umbrella. While Ajay Piramal, chairman of Shriram Capital maintained that the entities will follow all regulatory rules for the merger, it is to be seen how the merger will be structured so that they do not face questions from RBI.

Similarly, Shriram Life Insurance and Shriram General Insurance will now become wholly owned subsidiaries of IDFC Limited. This will need an approval of Insurance Regulatory and Development Authority of India (IRDAI) since there will be a change in the shareholding structure. The regulator looks at the financial strength and past track records of a company before giving it permission to promote or hold substantial stake in an insurance entity

An existing merger between HDFC Life and Max Life is being reworked due to a concern raised by IRDAI on the structure of a deal.

Further, Shriram Asset Management Company will be under IDFC Limited which will require an approval from the Securities and Exchange Board of India (Sebi). This is expected to be a smooth sailing transaction.

Company officials are of the view that the concerned regulators have already been intimated informally about the potential deal so that clarity can be sought on any hurdles.