MC Explains: IDFC set to merge with IDFC First Bank: All you need to know about the deal

.IDFC First Bank's deposit franchise has recorded a four-year compound annual growth rate of 36 percent since the merger.

On July 3, the board of directors of IDFC First Bank and IDFC Ltd approved a scheme of amalgamation, in an all-stock deal.

Interestingly, the announcement came shortly after the mega-merger announcement between HDFC Bank, the country’s largest private sector lender, and Housing Development Finance Corporation (HDFC), effective July 1.

Here is what the IDFC-IDFC First Bank merger is all about.

What is the aim of the merger?

The bank, in a filing to the stock exchanges, said the merger will lead to the simplification of the corporate structure of IDFC Financial Holding Company, IDFC Ltd and IDFC First Bank by consolidating them into a single entity and will help streamline the regulatory compliances of these entities.

"The merger will help create an institution with diversified public and institutional shareholders, like other large private sector banks, with no promoter holding," the bank said.

What is the swap ratio for shareholders?

The share swap ratio has been fixed as 155 equity shares of face value of Rs 10 of IDFC First Bank for every 100 equity shares of face value of Rs 10 of IDFC Ltd.

When is the merger expected to be completed?

The companies have completed all stages of corporate simplifications and the next step is the amalgamation with IDFC First Bank Ltd, the company said in an exchange filing. "We propose to complete the amalgamation in this financial year, barring unforeseen circumstances." Hence, one can expect the merger to be completed this financial year itself.

What are the RBI's rules for shareholding of a non-operative financial holding company?

According to RBI rules, the shareholding of a non-operative financial holding company, which is the promoter of the bank, should be a minimum of 40 percent of the paid-up voting equity capital of the bank that will be locked in for five years from the date of commencement of the business of the bank.

When did IDFC First Bank start operations?

IDFC Bank was given a licence by the RBI along with Bandhan Bank in 2014. In 2018, IDFC Bank Ltd and Capital First Ltd announced the completion of the merger to become IDFC First Bank.

What is IDFC’s holding in the bank?

IDFC, through its non-financial holding company, holds a 39.93 percent stake in IDFC First Bank. After the merger, the book value per share of the bank will increase by 4.9 percent, as calculated on audited financials as of March 31, 2023.

What is the response of investors to the announcement?

The IDFC stock opened 4 percent higher on July 4 after the company declared the share swap ratio for its long-awaited merger with the banking arm.

How big is IDFC First Bank’s loan book?

In terms of assets, the bank has a well-diversified loan book of Rs 1,60,599 crore, with a balance sheet size of Rs 2,39,942 crore, as on March 31, 2023. The bank has strong capital adequacy ratio of 16.82 percent, as of March 31, 2023. The bank has said it plans to grow its balance sheet by 20-25 percent per year in the near to medium term.

What about deposits?

IDFC First Bank's deposit franchise has recorded a four-year compound annual growth rate (CAGR) of 36 percent since the merger to reach Rs 1.36 lakh crore by March 31, 2023. The bank has increased its current account and savings account (CASA) ratio from 8.6 percent from the time of its merger with Capital First in December 2018, to 49.77 percent till March 2023.