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IDFC Bank-Capital First to Merge

The deal is a win-win for both; all eyes on RBI now

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IDFC Bank and Capital First on Saturday said they are to merge to create an entity with a diversified book which will straddle corporate, small enterprises, and retail with combined assets of Rs 88,000 crore, a 195-branch strong network and customer base of over 5 million.



As per the terms of the merger, shareholders of Capital First will get 139 shares of IDFC Bank for every 10 held. V Vaidyanathan, founder and executive chairman of Capital First will take over as the chief executive officer of the merged entity after all regulatory approvals; he will current incumbent Rajiv Lall who will become the non-executive Chairman of IDFC Bank; Lall will replace Veena Mankar who will remain on the Board.




The merger ties in the long-stated intent of the principals – of IDFC Bank wanting to get into retail and of Capital First desirous of turning into a universal bank. The transaction comes on the heels of a failed attempt by IDFC Bank to merge with billionaire Ajay Piramal’s Shriram Capital a few months ago.




“We believe this merger will be transformational for IDFC Bank," said Rajiv Lall. "It will bring two tech-savvy, culturally aligned platforms to come together to create a diversified and fast growing universal bank with a national footprint, in a manner that will be value accretive for all shareholders. Vaidya has built a terrific franchise and team. He comes with a proven track record, the right experience and the leadership skills to firmly establish the combined entity amongst the highest echelons of Indian banking."




"On our part, we have always said publicly that a banking platform provides a stable diversified liability base and is hence critical for building a large franchise," said Vaidyanathan. "We are excited about this merger because IDFC Bank provides a perfect platform for continued growth of the combined franchise, supported by low-cost funding."




Warburg Pincus owns 36 per cent in Capital First which is primarily into lending to small and medium enterprises. The market capitalization of Capital First ten-fold since the buyout in March 2012 from Rs 780 crore to over Rs 8,000 crore.




Post-merger, the promoters of IDFC Bank will hold 37.6 per cent and Capital First Promoters 10.2 per cent with the rest being held by public shareholders. What will be keenly watched is how Mont Road treats the proposed merger – its norms on acquisition of more than five per cent stake in a bank will required its nod.




"A merger with the IDFC platform that has been built by Rajiv and his team creates a powerful combination,"said Vishal Mahadevia, Head Warburg Pincus India We are excited about the opportunity to be part of something special here, and look forward to supporting Vaidya and the teams at Capital First and IDFC Bank as they grow the platform into a leading banking institution in the country."


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