Published: Mon, January 15, 2018
Finance | By Loren Pratt

IDFC Bank-Capital First to Merge

IDFC Bank-Capital First to Merge

IDFC Bank Ltd, one of India's two newest banks, said on Saturday its board has approved a takeover of non-bank financial firm Capital First Ltd in a share swap deal. The deal will go through shareholders' nod and other regulatory approvals.

As per the deal, V. Vaidyanathan, the chairman and managing director of Capital First, will succeed Rajiv Lal as the MD & chief executive officer of the combined entity. The market capitalization of Capital First ten-fold since the buyout in March 2012 from Rs 780 crore to over Rs 8,000 crore.

The merger ties in the long-stated intent of the principals - of IDFC Bank wanting to get into retail and of Capital First desirous of turning into a universal bank.

Over the past 13 years Dr Rajiv Lall has led the growth of the IDFC Group - as MD and CEO of IDFC from 2005-13, as Executive Chairman of IDFC Group from 2013-15, and as founding MD and CEO of IDFC Bank from 2015 to the present.

Post-merger, the combined entity will have an AUM of Rs 88,000 crore; PAT of Rs 1,268 crore (FY17); and a distribution network comprising 194 branches (as per branch count of December 2017 of both entities), 353 dedicated BC outlets and over 9,100 micro ATM points, serving more than five million customers across the country.

That's why even if many say the merger deal announced on Friday is a marriage of convenience after a failed engagement of IDFC and Shriram Group previous year; this is the opportunity that Vaidyanathan, an avid long distance runner, had been looking for to go the full hog as far as the banking sector is concerned. As on September, Capital First's loan book stood at Rs22,974 crore with a presence across 228 locations.

The last week's merger of his Capital First - where he was the Founder and Executive Chariman - with IDFC Bank, is a vindication of his entrepreneurial journey till now. IDFC Bank Ltd rose as much as 2.2 per cent to Rs 69.

Under the deal, IDFC Bank will issue 139 shares for every 10 shares of Capital First.

Moreover, Capital First, being an NBFC is dependent on wholesale borrowings, with more than 50 percent bank borrowings, will get access to low cost funds but also must ramp up the deposit base.

Vaidyanathan said: "On our part, we have always said publicly that a banking platform provides a stable diversified liability base and is hence critical for building a large franchise".

An ICICI product, Vaidyanathan's retail banking skills will be key given the retail focus in the banking sector, which including IDFC Bank, is struggling with mounting bad loans in the wholesale, especially infrastructure segment. The gross NPAs of IDFC Bank are over 3%, while those of Capital First are only at 1.63%.

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