IDFC To Merge With Its Banking Arm IDFC Bank In All-Stock Deal, Stock Rises

Stock of IDFC opened 4 per cent higher on Tuesday after the company declared the share swap ratio for its long-awaited merger with its banking arm

Days after the amalgamation of the HDFC Bank and HDFC, IDFC First Bank has announced merger of its parent IDFC Ltd with itself in an all-stock transaction, marking another major deal in the Indian banking space. The boards of IDFC First Bank and IDFC have approved the reverse merger.

Stock of IDFC opened 4 per cent higher on Tuesday after the company declared the share swap ratio for its long-awaited merger with its banking arm. IDFC Ltd closed at Rs 109.90 on the NSE and IDFC First Bank closed at Rs 81.70 on Monday.

The bank did not provide the likely valuation of the merged entity, however, based on Monday's closing prices of the two companies on the BSE, the valuation is Rs 71,767 crore.

An IDFC shareholder will get 155 shares for every 100 shares she/he holds in the bank under the proposed reverse merger scheme. Both stocks have a face value of Rs 10 each, IDFC First Bank said in a statement. The share exchange ratio will result in a premium of about 20 per cent on the closing market price of the shares of IDFC vis-a-vis IDFC First Bank as of June 30, 2023.

Anil Singhvi, chairman, IDFC, said the merger is the last phase of IDFC's corporate restructuring and will help create a financial services provider that offers seamless delivery of services to customers. It will augment operational efficiency for the merged entity and create synergies for our shareholders.

Following the merger, the standalone book value per share of the bank will increase by 4.9 per cent, as calculated on the audited financials as of March 2023, it said, adding as of June 2023, IDFC through its non-financial holding company, owned 39.93 per cent in IDFC First Bank.

IDFC First Bank's market capitalisation stood at Rs 54,311.48 crore at close today, after the stock rallied 3.2 per cent to Rs 81.94 on the BSE, while IDFC MCap stood at Rs 17,456 crore after its counter rallied 6.3 per cent to Rs 109.10, taking the combined value to Rs 71,767 crore.

Sanjeeb Chaudhuri, chairman, IDFC First Bank, said, "We now embark on the next phase of our growth journey towards our long-term vision, and the merger will create sustainable shareholder value in the years to come." 

IDFC was an infra lender in the private sector space, and following its bigger peers such as ICICI and IDBI, it also launched a banking subsidiary in 2015, IDFC Bank, but could not make a mark as the other two could do.

Effective July 1, India Inc's biggest merger came into effect when the mortgage major HDFC merged itself with its banking arm in an all-stock deal valued at $40 billion. Post-merger, announced on April 4, 2022, HDFC Bank is the world's fourth most valued bank with $200 billion in valuation after JP Morgan Chase, ICBC of China, and Bank of America.

The new giant, fully owned by public shareholders with no promoter entity, has a balance sheet of close to Rs 33 lakh crore, with the assets alone sniffing at Rs 23 lakh crore and also the largest mortgage book with close to Rs 7 lakh crore of loans. The merger scheme is subject to all requisite approvals from the Reserve Bank, Sebi, Competition Commission, National Company Law Tribunal, and stock exchanges, and shareholders of both entities.

IDFC began as an infra lender in 1997. It got in-principle approval from the RBI to set up a bank in April 2014, and in October 2015, it launched IDFC Bank when on-tap licensing began, following which loans and liabilities of IDFC were transferred to the bank.

Since the merger, the bank built a deposit franchise that has grown 36 per cent annually since then, and has reached Rs 1,36,812 crore as of March 2023. The bank has also increased its low-cost CASA ratio from 8.6 at the merger with Capital First to 49.77 per cent as of March 2023. The bank has 809 branches and runs 925 ATMs. Its loan book stood at Rs 1,60,599 crore with a balance sheet of Rs 2,39,942 crore as of March 2023.

V Vaidyanathan, MD, IDFC First Bank, said, "We have built a strong deposit franchise, digital innovation, customer-friendly products, strong capital buffer, growing profitability and high corporate governance".