(Eds: adding managements' quotes and more details)Mumbai, Oct 14 (PTI) Ending months of speculation,Indusind Bank and the second largest microlender BharatFinancial Inclusion (BFIL) today announced largest merger inthe MFI space in an all-share deal, which will help theprivate sector lender push its rural network and bring downcredit cost for small borrowers.
The merger, which will add 6.8 million customers toIndusind's 10 million now, and which comes amid a slew ofsimilar announcements involving the urban-focused new ageprivate sector lenders such as Kotak Bank and IDFC Bank, willalso help reduce cost of lending for micro borrowers ascheaper deposits can be used to fund their credit needs.
"The biggest gain for us is the rural network. It willalso us help reduce cost of funds by 3-4 per cent," IndusindBank managing director and chief executive Ramesh Sobti said.
Earlier this afternoon, the boards of both the lendersseparately decided on the merger and approved the share swapratio wherein BFIL shareholders will get 639 shares ofIndusind for every 1,000 shares held.
The balance-sheet of BFIL, including the entirecapital, assets and liabilities will move into Indusind, whilethe operation team will continue as a wholly owned subsidiaryand work as business correspondents.
The combined entity will have 40,000 employees, Sobtisaid, stating all the 15,000 employees of BFIL will beabsorbed and continue in the same role. However, the board ofthe Hinduja Group promoted bank will remain unchanged.
The Indusind scrip closed 0.43 per cent up at Rs1,750.15 on the BSE on Friday, while BFIL shares closed 0.38per cent up at Rs 1,003.45.
Sobti conceded that there is a 12-13 per cent premiumover the average stock prices in the past two weeks which BFILshareholders will get, but justified it on the Rs 9,500-croreloan book which his bank gets and also the synergies that willdeliver higher value going forward.
The merger, expected to take up to 10 months toconsummate, will help the bank in its rural play, where it hasonly 250 of its 1,210 branches, Sobti said.
BFIL's network touches 1 lakh villages across thecountry and the merger will help it act as a full service bankrather than the monoline micro-loan provider, BFIL managingdirector and chief executive MR Rao said.
In the past few months, speculation has been strongabout BFIL's suitor, especially after repeated attempts by themicrolender which has survived multiple crises to turn into asmall finance bank have failed. Many of its peers did manageto turn into the new-age entities.
PH Ravi Kumar, non-executive chairman of BFIL, saidthe merger is not "an easy one" for the MFI and shared atrivia by stating that the announcement comes on the seventhanniversary of the passage of the Andhra MFI Act, which hadled to doubts over the very survival of the sector.
This regulatory overreach had forced BFIL, floated bythe high profile Vikram Akula as SKS Microfinance, and takento a historic IPO in 2010 making it the first MFI to gopublic, to even change to its present name. The Andhra lawleft every player bleeding for a few years and forced RBI tobring the sector under its purview.
BFIL feels only two areas of the banking segment --the lower-middle class and those around poverty line --are theones accretive to margins and when coupled with the full rangeof service offerings, the merger is a win-win.
Sobti elaborated saying that apart from reducing costof funds, merger will help Indusind not just achieve thepriority sector lending sub-targets but also exceed them,making it a player in the PSL certificates market that isfee-accretive.
Because of the lower risk weights attached to lendingby banks, it will help conserve capital as well, Sobti added,adding "the merger is value accretive from day one."When asked about the structure of absorbing thebalance sheet and keeping operations as a wholly-ownedsubsidiary, Sobti said it is in sync with past precedentswhich have been cleared by the regulators and will also helpmaintain the ethos of the company.
The merger, which comes amid a surge in agri loanlosses by banks, will increase share of micro loans to 7 percent of the loan book of Indusind from 2.8 per cent now, Sobtisaid, but will dip to 5 per cent over the next three years.
Asserting that microloan segment is "high yielding andhas low delinquency rates", Sobti said it will not lead tomuch troubles on the asset quality as BFIL has a 99.6 per centrepayment levels in this calendar year, after the note-bankhiccups stabilised.
Rao chipped in saying demonetisation led to a Rs 400-crore loan loss for BFIL, but it has been fully provided.
The deal will have to pass through a slew ofregulators such as the Reserve Bank, National Company LawBoard Tribunal and fair-play watchdog CCI. PTI AA BENKRK.
This is unedited, unformatted feed from the Press Trust of India wire.