INDUSTRY

IDFC Bank, Capital First set to merge

Manojit Saha

MUMBAI , JANUARY 13, 2018 18:42 IST

UPDATED: JANUARY 13, 2018 20:43 IST

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Rajiv B Lall, Executive Vice Chairman and Managing Director, IDFC Bank, at a press conference during the unveiling of the bank's new identity, in Mumbai on September 24, 2015. IDFC Limited, India leading integrated infrastructure finance institution, unveiled the brand identity, and announced the Board of Directors and Management team of its new entity "IDFC Bank". Photo: Shashi Ashiwal  

The share swap deal will see IDFC Bank’s Lall making way for the latter’s Vaidyanathan at the helm

IDFC Bank on Saturday announced it would merge with Capital First, a retail focussed non-banking finance company backed by private equity firm Warburg Pincus.

IDFC Bank, which has been looking to acquire an entity with a strong retail franchise that could help return ratios to improve, had earlier unsuccessfully attempted to merge with Shriram Group.

IDFC Bank’s managing director and CEO Rajiv Lall, will make way at the helm of the merged entity for V. Vaidyanathan, executive chairman and managing director of Capital First.

Mr. Vaidyanathan is a former ICICI Bank executive who founded Capital First.

Dr. Lall will be the non-executive chairman of the merged entity, while Mr. Vaidyanathan will be the MD & CEO. When IDFC Bank commenced operations in 2015, Dr. Lall had stepped down from IDFC Ltd., where he was executive chairman, to head the bank.

IDFC Bank will issue 139 shares for every 10 shares of Capital First.

Sources close to the deal said Mr. Vaidyanathan’s appointment as chief executive of the bank was an important consideration for the deal. “IDFC Bank not only got retail assets in the deal, but also an individual who has experience in driving retail growth,” said a source.

“[The] announcement is pursuant to IDFC Bank’s stated strategy of ‘retailising’ its business and transforming into a well-diversified universal bank; and in line with Capital First’s stated intention and strategy to convert to a universal bank,” according to a joint statement.

3 million customers

Capital First has a retail lending book of ₹22,974 crore as at September 2017, with more than three million customers.

The NBFC is growing at a five-year CAGR of 27% on AUM and 40% in profits, with gross and net NPAs at 1.63% and 1% respectively.

Post merger, the combined entity will have an AUM of ₹88,000 crore, PAT of ₹1,268 crore (FY 17), distribution network comprising 194 branches (as per branch count of December 2017 of both entities), 353 dedicated banking correspondent outlets and more than 9,100 micro ATM points, serving more than five million customers across the country.Warburg Pincus, which has a 36% stake in Capital First, will see its stake reducing to a little above 10%, in the merged entity.

Vishal Mahadevia, head, Warburg Pincus India, said: “It has been a terrific journey over the past five-plus years watching Vaidya lead Capital First from a virtual start-up to one of the premier retail and MSME financiers in the country.” Prior to joining IDFC, Dr. Lall was also partner with Warburg Pincus in New York.

"We believe this merger will be transformational for IDFC Bank. 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,” Dr. Lall said.