What is the road ahead for Aditya Birla Capital after the merger with its subsidiary?

Post amalgamation, Aditya Birla Capital will get converted from a holding company to an operating non-banking finance company (NBFC).

The merger of Aditya Birla Capital with Aditya Birla Finance, its wholly-owned subsidiary, will create a non-banking financial company (NBFC) titan with a change in its business structure from a holding company to an operating company, industry experts said. With assets under management (AUM) of the combined entity crossing the Rs 5 lakh crore mark, the entity will be one of the biggest NBFCs in the country.

Additionally, the merger is also in line with the Reserve Bank of India’s (RBI) scale-based regulations, under which Aditya Birla Finance was to be listed by September 30, 2025. With the merger, the listing of the company is not required, experts said.

So how will the business shape up? And what does this mean for the larger NBFC space which has been under the RBI's scanner? Here’s an explainer.

What is the development?

The board of directors of Aditya Birla Capital on March 11 approved the amalgamation of Aditya Birla Finance, its wholly owned subsidiary, with itself to create a large unified operating NBFC. The amalgamation is subject to regulatory approvals, the company said in an exchange notification.

Also read: Aditya Birla Capital's Board approves merger of Aditya Birla Finance with itself; to create a unified large entity

Upon the scheme becoming effective, Vishakha Mulye will be the managing director and chief executive officer, and Rakesh Singh will assume the role as executive director and CEO (NBFC) of the amalgamated company, the group said in the statement. After completion of the amalgamation, Aditya Birla Capital will get converted from a holding company into an NBFC, the company said in the release. Also, this will create a unified large entity with greater financial strength and flexibility, enabling direct access to capital, the company said.

A day after the announcement, shares of Aditya Birla Capital gained nearly 4 percent at the opening on the National Stock Exchange on March 12. The merger was announced post-market hours on March 11 and at 9.20 am on March 12, the stock was trading at Rs 186.90.

RBI’s scale-based regulations

Aditya Birla Finance is one of the 15 NBFCs and housing finance companies classified in the upper layer of the RBI's first list released on September 30, 2022 based on the central bank's scale-based regulations.

In terms of the framework, once an NBFC is classified as NBFC-UL, it is subject to  enhanced regulatory requirements for five years from its classification in the layer. Additionally, experts said that Aditya Birla Finance will have no need to get listed under RBI’s rules. The central bank in October 2021 issued a circular saying that all the upper-layer NBFCs are required to go public within three years of classification.

Sanjay Agarwal, Senior Director, BFSI, CareEdge, said: “After the merger of Aditya Birla Finance with Aditya Birla Capital, and after the required regulatory approvals, the combined entity will become an upper layer NBFC,” Agarwal said.

Business growth and numbers

Aditya Birla Capital is the holding company for the financial services businesses of the Aditya Birla Group and according to its website, as on December 31, 2023, the company had aggregate AUM of over Rs. 4.10 lakh crore with a consolidated lending book of about Rs 1.15 lakh crore through its subsidiaries and joint ventures.

Also read: Aditya Birla Capital gains 4% on merger with Aditya Birla Finance

Aditya Birla Finance had AUM of Rs 98,600 crore. The company’s business varies from end-to-end lending, financing and wealth management solutions.

Experts said that despite the fact that the merger will result in a segment heavyweight, it will not have any significant impact on the sector.

“A merger of a company with its subsidiary will create a large market opportunity for the merged entity to grow. This is not going to impact other players in the industry as they have their businesses in place,” said Saurabh Bhalerao, associate director, BFSI, CareEdge.