Mortgage firm Gruh Finance Ltd, currently controlled by HDFC, has decided to merge with Bandhan Bank. The boards of both the firms approved the merger on Monday.
The share exchange ratio agreed by both boards is 568 equity shares of face value of Rs 10 each of Bandhan Bank to be issued for every 1,000 equity shares of Rs 2 face value each of Gruh. HDFC, which has 57.86 per cent stake in Gruh Finance, will own 14.96 per cent in the merged entity.
HDFC Chairman Deepak Parekh said HDFC will seek approval from the RBI to retain up to 15 per cent in the merged entity. As per the RBI’s rules, HDFC can hold up to 10 per cent. It needs approval for holding anything more than 5 per cent stake in a bank. If the RBI doesn’t give the approval, HDFC will have to bring down its holding to 10 per cent.
The combined market valuation of both the entities is over Rs 82,000 crore.
Post-merger, based on pro-forma financials as of September 30, 2018, Bandhan Bank would have outstanding loan book of Rs 50,036 crore. Loan book would consist of micro loans (58 per cent), retail home loans (28 per cent) and other loans (14 per cent).
Combined distribution network would comprise 4,182 banking outlets and 476 ATMs across 34 states and union territories of India. Merged entity would have more than 31,000 employees serving about 1.5 crore customers across the country. Post-merger, the shareholding of Bandhan Financial Holdings Limited in Bandhan Bank would reduce from 82.3 per cent to 61.0 per cent.
Bandhan Bank shares closed 5.21 per cent lower at Rs 501.10 on the BSE on Monday. Gruh Finance lost 3.86 per cent at Rs 306.20. Bandhan’s market cap was at Rs 59,771 crore and Gruh Finance at Rs 22,436 crore.
“HDFC is scaling up its own affordable housing portfolio. With Gruh merging into Bandhan Bank, this transaction mitigates any potential conflict of interest within the HDFC group that could arise due to overlaps of targeting the same customer and market segments. Change always brings in an element of uncertainty, but when work cultures and business ethics are similar, (which we see with both, Gruh and Bandhan Bank), it gives confidence that a bright future is awaiting,” Parekh said.
Chandra Shekhar Ghosh, MD and CEO, Bandhan Bank, said, “Gruh has a strong pedigree and is one of the best housing finance companies in India. This merger would bring together two companies and teams that have a common mission of serving the under banked population of the country. Bandhan Bank is excited about this merger as it gives us the opportunity to build a unique pan-India affordable housing franchise.”