Bharat Financial Inclusion Ltd, formerly known as SKS Microfinance, has decided to merge with Hinduja-promoted IndusInd Bank “to create a stronger and more sustainable platform for financial inclusion”. As part of the deal, which was approved by the boards of both the entities on Saturday, Bharat Financial’s shareholders will receive 639 shares of IndusInd for every 1,000 shares of Bharat Financial Inclusion Limited. This implies a premium of 12.6 per cent to Bharat Financial over two-week volume weighted price (VWAP).
After the merger, IndusInd will have 3,600-plus banking points (excluding ATMs). IndusInd Bank’s 10-million strong customer base will stand enhanced through the addition of Bharat Financial’s 6.8 million borrowers. All the employees of Bharat Financial — a leading microfinance company with presence across 16 states covering one lakh villages — will become part of IndusInd Bank. SKS Mcrofinance was originally promoted by Vikram Akula who resigned from its board in November 2011. The company that spread the concept of microfinance in India listed its shares on the exchanges in 2010.
The merger will be effected through an all-stock transaction of Bharat Financial into IndusInd through a Composite Scheme of Arrangement. The scheme contemplates transfer of Bharat Financial’s Business Correspondent operations into a wholly owned subsidiary of IndusInd, which will be incorporated after receipt of requisite regulatory approvals. All the assets and liabilities originated by the subsidiary will be booked in the balance sheet of IndusInd.
There will be a preferential allotment of warrants to the promoters of IndusInd in accordance with the applicable RBI and Sebi guidelines as an anti-dilutive measure. “Bharat Financial fits with the rural banking and microfinance theme of IndusInd’s Planning Cycle-4 strategy, and will provide IndusInd access to best in class micro-lending capabilities and domain expertise in microfinance,” it said. Bharat Financial has 1,408 branches across 347 districts while IndusInd Bank has a branch network of 1,210 bank branches (including 250 rural branches) and 999 vehicle finance outlets.
Bharat Financial had posted a revenue of Rs 1,553 crore a net profit of Rs 289.69 crore for fiscal 2016-17. Its shares closed 0.38 per cent higher at Rs 1003.45 on the BSE on Friday. IndusInd Bank reported a revenue of Rs 14,405 crore and a net profit of Rs 2,867 crore in 2016-17. The bank’s shares closed 0.43 per cent higher at Rs 1750.15 on the BSE
R Seshasayee, chairman, IndusInd Bank, said: “The board of the bank believes that the composite scheme of arrangement relating to the merger of these two illustrious institutions will add value to all stakeholders and the Bank.” The merger is expected to be value accretive from inception given IndusInd Bank’s lower cost of funds, ability to monetize excess PSL qualifying assets, efficient capital utilisation and optimal resource utilisation.
P H Ravikumar, chairman, Bharat Financial Inclusion, said: “The transaction will bring immense benefits to Bharat Financial Inclusion’s vast customer base, staff and shareholders.” Once the merger scheme becomes effective, Bharat Financial will stand merged into IndusInd and shareholders of Bharat Financial will receive shares of IndusInd in exchange for shares held by them in Bharat Financial, said Romesh Sobti, MD and CEO of IndusInd Bank.
Deloitte Haskins & Sells and S R Batliboi and Co LLP, the independent valuers appointed by IndusInd and Bharat Financial respectively, recommended the swap ratio, which has been accepted by the respective boards. Morgan Stanley India provided a fairness opinion to IndusInd and Credit Suisse Securities provided a fairness opinion to Bharat Financial.