IDFC Bank Acquires Capital First Ltd

Highlights

  • The combined entity will have an AUM of Rs. 88,000 crores
  • The distribution network comprises of 194 branches and over 9100 micro ATM points.

 IDFC bank has announced its merger with one of the top finance providing companies-Capital First. The board of directors from both the sides have agreed to the deal. What makes this merger unique is that one of the newest banks has agreed to give 139 shares for every 10 shares of Capital First. The deal is estimated to be worth Rs. 9,541.57 crores ($1.5 billion). In November 2017, IDFC Bank called off its merger with Shriram Housing Finance due to the disagreements on valuation and objections raised by institutional shareholders.

How beneficial is this step for IDFC Bank?

IDFC Bank wants to be counted among the top four private banks in India and this merger has been set with a goal of acquiring 6 million customers on board by March 2020. The bank already has around 2 million customers while post the merger, Capital First brings in a loan (home loan, personal loan, car loan, etc.) book of nearly Rs. 23,000 crores and a 3 million strong customer base as well.

What will happen post the merger?

The combined entity of IDFC Bank and Capital First will have an AUM of Rs. 88,000 crores and a distribution network comprising of 194 branches and over 9100 micro ATM points.

The proposed merger between IDFC Bank and Capital First, more than a third owned by private equity firm Warburg Pincus, will require the merged entity to raise as much as Rs 4,000 crore to meet regulatory obligations on liquidity while the buyout firm may have to cut its stake by half a percentage point or so.

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IDFC Bank Ltd along with Capital First Ltd has decided to come together with the expectation to strengthen their retail banking. Retail is expected to become more than 50 percent of the loan book of the merged entity with which it will be possible to build a more granular business within the retail segment. If the bank is successful in doing so, it will be protecting it against the concentration risk that wholesale loans expose a lender to.

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