The Shriram Group and IDFC Bank on Saturday entered into 90-day exclusive talks for a mega merger to create a $10-billion financial entity. While no financial transaction has been cleared by both groups so far, all businesses of Shriram City Union Finance will be merged with IDFC Bank as per the contours of the merger plan. Life and general insurance businesses will become subsidiaries of IDFC Ltd. Transport finance business — Shriram Transport Finance — will remain as standalone entity while all operating businesses of both groups will come under IDFC.
IDFC Bank MD and CEO Rajiv Lall said it was a “marriage made in heaven” as group businesses compliment each other. “All the operating businesses of the group will all come together IDFC-Shriram structure. Shriram’s retail businesses will be absorbed by IDFC. Shriram Transport will remain separate business entity though it will come under the IDFC-Shriram umbrella. This will be a complex transaction and hard to execute,” Lall said.
“IDFC is expected to hold substantial stake in the two insurance companies of Shriram,” Lall said. Shriram Asset Management Company, Shriram Life Insurance and Shriram General Insurance will be part of IDFC Ltd, the holding company of IDFC Bank.
Addressing a media conference, Shriram Capital chairman Ajay Piramal said that approvals are needed from the RBI, Sebi, Irdai, the Competition Commission and stock exchanges for a merger to fructify. The idea is to create a financial conglomerate with a universal bank at the centre, he said. “I am happy to announce that Boards of both the firms have ventured into a pact for 90 days to get into the merger.”
The new entity after the merger will be known as IDFC Shriram. The RBI nod for the merger will be key for the plan to fructify. “Both the parties wouldn’t have gone for the merger plan without getting a green signal from the RBI,” said a banking source. HDFC chairman Deepak Parekh, who was also the founder chairman of IDFC, said: “This is a great transaction. I wish this marriage happens. It is good to see that they are coming together.”
IDFC Bank, in a notification to the stock exchanges, said its board of directors has approved entering into a confidentiality, exclusivity and standstill agreement to evaluate a potential combination of certain businesses and subsidiaries of Shriram Group engaged in credit and non-credit financial services with IDFC group.
Shriram Group founder R Thyagarajan said that this is a great vision and that they are enthusiastic about possibility of this amalgamation. Shriram Transport Finance and Shriram City Union Finance — promoted by Shriram Capital — have worked across diverse business verticals. While the former has exclusively focused on commercial vehicle finance and construction equipment finance, the latter has built its business around two-wheeler loans, gold loans and loans to small and medium enterprises. R Thyagarajan is the founder chairman of Shriram Capital. Piramal Enterprises of Ajay Piramal acquired 9.99 per cent stake in Shriram City Union Finance for Rs 790 crore in 2014. Piramal also bought a 20 per cent stake for a total consideration of Rs 2,014 crore in Shriram Capital. In May 2013, Piramal invested Rs 1,636 crore to acquire 9.9 per cent equity in Shriram Transport Finance Company.
In the case of IDFC Bank, which started operations in October 2015, over 25 per cent of the bank’s funded credit was “retailised” as of March 2017 and infrastructure concentration was lower by 15 percentage points relative to last year. The bank’s deposits stood at Rs 40,208 crore at the end of March 2017.