India’s newest scheduled commercial lender IDFC Bank and Warburg Pincus-backed Capital First on Saturday agreed to merge in an all-share deal. V Vaidyanathan, chairman of the non-banking finance company, would become the MD and CEO of the merged entity, succeeding Rajiv Lall. Lall, MD and CEO of IDFC Bank, will become non-executive chairman of IDFC Bank, and guide the transition process, which may take six to nine months to complete. After the merger, the existing structure of IDFC Ltd, being the holding company, would continue to exist, Vaidyanathan told Business Standard in an interview. In another interview, Lall said that the retailisation exercise would continue in the bank, but further mergers and acquisitions might not be needed for now. ALSO READ: IDFC Bank is getting a person who understands retail: CEO Rajiv Lall IDFC Bank would be issuing 139 shares for every 10 shares of Capital First, the companies said. Both Lall and Vaidyanathan are hopeful the deal would get shareholders’ nod and other regulatory approvals. “The number of products that we can offer to our customers would be much larger, the product suite can be more and the balance sheet of the IDFC Bank is more diversified because of the retail presence. So, yes, that would be the bigger part of the strategy,” Vaidyanathan said. The merger is in line with IDFC Bank’s quest for mass retailisation and Capital First’s intention to become a bank. But analysts seem to be apprehensive. “Retail assets can be built quickly, but the problem is, how do you garner retail liabilities (deposits)? Capital First won’t be helping much in that. Besides, the kind of customers Capital First will have, I doubt the bank would want them. The bank seems to be struggling a bit,” an analyst with a foreign brokerage said. Capital First specialises in financing small entrepreneurs and consumers and has a good presence in the small and medium enterprises space. The market capitalisation of the combined entity works out to be about Rs 313 billion (Rs 230.3 billion of IDFC Bank and Rs 82.7 billion of Capital First), based on the closing price of January 12. After the merger, the combined entity would have assets under management of Rs 880 billion and would serve more than five million customers across the country. The profit after tax of the merged entity would have been Rs 12.7 billion at end of fiscal 2017, and a distribution network of 194 branches (according to branch count of December 2017 of both entities), 353 dedicated business correspondent outlets, and over 9,100 micro ATM points. “This announcement is pursuant to IDFC Bank’s stated strategy of ‘retailising’ its business to complete its transition from a dedicated infrastructure financier to a well-diversified universal bank, and in line with Capital First’s stated intention and strategy to convert into a universal bank,” the statement said. Capital First’s retail loan book as on September 2017 was worth Rs 229.7 billion, with a customer base of three million customers, and a distribution network in 228 locations. In the September quarter, Capital First had a gross NPA ratio and net NPA ratio of 1.63 per cent, and 1 per cent, respectively. graph IDFC Bank’s gross and net NPA ratios were at 3.92 per cent, and 1.61 per cent, respectively. As promoter, IDFC Financial Holding Co.

Ltd. holds 52.83 per cent in IDFC Bank. In Capital First, Cloverdell Investment Ltd (an arm of Warburg Pincus) holds 34.32 per cent. Cloverdell sold 25 per cent of its shareholding in Capital First in May last year. If the deal goes through, it will now have to sell more as under RBI rules, Warburg won’t be able to hold more than 10 per cent in a bank.

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