After its failed merger plan with Shriram Capital last year, IDFC Bank on Saturday announced that Capital First Ltd will merge with the bank to form a banking entity with combined assets under management of Rs 88,000 crore and a market capitalisation of over Rs 31,000 crore.
“IDFC Bank will issue 139 shares for every 10 shares of Capital First,” the two companies said after their board meetings.
This is the second initiative by IDFC Bank to merge with a financial services firm. IDFC Bank and Shriram Capital had announced a merger plan last year, but the merger was called off in October 2017 due to differences over the valuation.
IDFC Bank on Saturday said the merger with Capital First is part of the stated strategy of “retailising” its business to complete their transformation from a dedicated infrastructure financier to a well-diversified universal bank. It is also in line with Capital First’s stated intention and strategy to convert to a universal bank, it said in a statement.
Capital First brings with it a retail lending franchise with a loan book of Rs 22,974 crore (September 2017), a live customer base of three million customers. It has a distribution network in 228 locations across the country growing at a five-year CAGR of 27 per cent on assets and 40 per cent in profits, with gross and net NPA at 1.63 per cent and 1.0 per cent respectively.
Capital First is 35.97 per cent owned by private equity firm Warburg Pincus, 13.91 per cent owned by GIC while V Vaidyanathan, also the Founder and Executive Chairman, holds the third largest stake at 10.5 per cent.
Post-merger, the combined entity of IDFC Bank and Capital First will have an AUM of Rs 88,000 crore, net profit of
Rs 1,268 crore (FY 17) and a distribution network comprising 194 branches (as per branch count of December 2017 of both entities), 353 dedicated BC outlets and over 9,100 micro ATM points, serving more than five million customers across the country.
Vaidyanathan, currently Chairman and MD of Capital First, will succeed Dr Rajiv Lall as MD and CEO of the combined entity following completion of the merger and necessary regulatory approvals.
IDFC Bank shares closed 1.31 per cent down at Rs 67.65 on Friday, valuing the company at Rs 23,000 crore. Capital First closed 0.05 per cent up at Rs 835.90 with a market capitalisation of Rs 8,266 crore. IDFC Bank made a profit of Rs 233 crore and Capital First Rs 70.93 crore for the September quarter.
Over the past 13 years Dr Rajiv Lall has led the growth of the IDFC Group — as MD and CEO of IDFC from 2005-13, as Executive Chairman of IDFC Group from 2013-15, and as founding MD and CEO of IDFC Bank from 2015 to the present. Post-merger Lall will step into the role of non-executive Chairman of IDFC Bank, subject to regulatory approvals, and guide the transition process. He will replace Veena Mankar who will remain on the Board.
Vaidyanathan founded Capital First by a management buyout of an existing listed NBFC and has built an institution specialising in financing small entrepreneurs and consumers, based on new age technologies and has increased the market capitalisation of Capital First ten-fold since the buyout, from Rs 780 crore (March 31, 2012) to over Rs 8,000 crore.
“We believe this merger will be transformational for IDFC Bank. It will bring two tech savvy, culturally aligned platforms to come together to create a diversified and fast growing universal bank with a national footprint, in a manner that will be value accretive for all shareholders,” Lall said.
Vaidyanathan said: “On our part, we have always said publicly that a banking platform provides a stable diversified liability base and is hence critical for building a large franchise. We are excited about this merger because IDFC Bank provides a perfect platform for continued growth of the combined franchise, supported by low-cost funding.”
Vishal Mahadevia, Head Warburg Pincus India, said: “A merger with the IDFC platform that has been built by Rajiv and his team creates a powerful combination. We are excited about the opportunity to be part of something special here, and look forward to supporting Vaidya and the teams at Capital First and IDFC Bank as they grow the platform into a leading banking institution in the country.”