IDFC Bank, Capital First to merge in a share swap deal

Private lender IDFC Bank Ltd will take over Capital First Ltd by swapping shares, boosting its customer base and offering a complete set of financial services in India’s highly competitive banking sector.
Shareholders of Warburg Pincus-backed Capital First will get 139 shares of IDFC Bank for every 10 held in the company, the lenders said yesterday in separate filings to the exchanges. Capital First chairman V Vaidyanathan will take over as the chief executive officer of the merged entity after all regulatory approvals.
“We believe the merger will be transformational for IDFC Bank,” Rajiv Lall, founder managing director of the bank, said. The merger will create a “diversified and fast growing universal bank” with a national footprint, that will be accretive for shareholders. Lal will assume the chairman’s post in the new entity.
The deal comes after a failed bid by IDFC bank, led by promoter IDFC Ltd, to merge with billionaire Ajay Piramal’s Shriram Capital. The bank, which started operations in 2014, has been scouting for acquisition targets to boost its retail lending portfolio and gain size to take on leaders like ICICI and HDFC Bank in India’s crowded banking sector.
“IDFC Bank on its own had been struggling for some time. It had created a wholesale banking vertical but were falling short in expanding the retail franchise,” Deven Choksey, managing director at KR Choksey Shares & Securities, said by phone. This “will create a combined entity with a strong retail and wholesale proposition.”
The combined firm will have Rs880bn ($14bn) of assets under management and a net income of Rs12.68bn. The distribution network will include 194 branches, 353 banking correspondent outlets and 9,100 micro automated teller machines to serve more than 5mn customers, it said.
Warburg will hold about 10% in the merged entity from 36% in Capital First, Vaidyanathan said by phone after the announcement. The merger with Capital First is in line with its stated strategy of “retailising” its business, IDFC said in a release.
Shares of Capital First advanced for a fifth session on Friday to close at Rs837.50, the highest level since February 2008. IDFC Bank stock dropped 1.5% in the last session to close at Rs67.50.
The Shriram deal was called off in October due to differences over valuations, people with knowledge of the matter said at the time. IDFC won a preliminary permit for its banking unit in 2014, and the lender has been publicly traded since November 2014.

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