Induslnd bank seals the deal for merger with Bharat Financial Inclusion

Induslnd bank seals the deal for merger with Bharat Financial Inclusion”

At the board of IndusInd bank's meeting on October 14 the company said in a BSE filing that it has approved a 'composite scheme of arrangement, ' between the companies."The merger will be effected through an all-stock transaction of Bharat Financial Inclusion Limited into IndusInd through a Composite Scheme of Arrangement (Scheme)". The deal is valued at 155 billion rupees ($2.4 billion). Bharat Financial Inclusion has a customer base of about 6.8 million. Bharat Financial had already been acting as a business correspondent for the bank. The proposal requires regulatory approvals. The deal would allow the bank to gain a slew of synergistic advantages.

Commenting that the deal is probably the largest merger and acquisition transaction in the microfinance sector, Mr. Sobti said, "The basic rationale [for the deal] is the very deep belief in both the institutions about the power of livelihood loans". This will also generate a lot of revenue because Bharat Financial Inclusion gets a lot of untapped deposits from the rural sector and underserved Indian customers. Formerly known as SKS Micro Finance, Bharat Financial has presence in one lakh villages in 347 districts. This implies a premium of 12.6 per cent to Bharat Financial over two-week volume weighted price (VWAP).

On 11 September, IndusInd and Bharat Financial had entered into an exclusivity agreement to evaluate the merger scheme.

Separately, the board of the bank also approved the issue of warrants to the promoters to ensure that they retain a 15 percent shareholding in the merged entity, which otherwise would have seen equity dilution of 1.9 percent with the merger.

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.

IndusInd Bank has invested so much money on Bharat Financial Inclusion because IndusInd Bank want to be a dominant player in the microfinance game and this will be the ideal way to get into the market.

As of June 30, the combined loan book will stand at Rs 1,26,038 crore of which around Rs 10,000 crore will come from BFIL. 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. Morgan Stanley India provided a fairness opinion to IndusInd and Credit Suisse Securities provided a fairness opinion to Bharat Financial.

The deal was closed after months of potential discussions with many players including RBL Bank and Kotak Mahindra Bank.

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