NEW DELHI: The Reserve Bank of India (RBI) has allowed IDFC Limited to exit as the promoter of IDFC First Bank as the five year lock-in period has ended, paving the way for a potential reverse merger between two entities.
“We would like to inform you that the Reserve Bank of India (RBI) has, vide its letter dated July 20, 2021, clarified that after the expiry of lock‐in period of 5 years, IDFC Limited can exit as the promoter of IDFC FIRST Bank Limited,” IDFC First Bank said in a communication to stock exchanges. This five-year lock-in period ended on September 30, 2020.
Earlier this month, the banking regulator also allowed the holding companies of Equitas and Ujjivan Small Finance Banks to reverse merger with the bank. The holding company discount for Equitas Holding company stands at 28.5% and Ujjivan SFB stands at 33.1%, and for IDFC, it currently stands at 27.7%.
IDFC holds 36.56% in the bank. An official application would have to be submitted to RBI for its approval for a reverse merger, which analysts say could help unlock shareholder value, removing the holding company discount for IDFC Ltd shareholders. Besides, IDFC may also have to sell its mutual fund business IDFC AMC.
According to RBI rules, the shareholding of the non-operative financial holding company, which is the promoter of the bank, should be a minimum of 40% of the paid up voting equity capital of the bank, which will be locked in for a period of five years from the date of commencement of the business of the bank, and thereafter reduce it to 15% over ten years.
IDFC Bank was given licence by RBI along with Bandhan Bank in 2014 pursuant to the February 2013 universal bank licensing guidelines. These guidelines mandated IDFC to create a non-operative financial holding company (NOFHC) structure to house the bank and other financial services units of the parent company to ensure the banking business was completely ring-fenced from other activities of the firm.
Holds 36.56% in the bank
An application needs to be submitted for RBI approval for a reverse merger, which could help unlock shareholder value, removing the holding company discount for IDFC Ltd shareholders