GIC-backed Bandhan Bank to acquire Gruh Finance in share-swap deal
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Bandhan Bank Ltd has agreed to acquire mortgage lender Gruh Finance Ltd in a transaction that will boost its housing loan business and help it reduce promoter holding as per regulatory requirements.

The two lenders said in stock-exchange filings on Monday that shareholders of Gruh Finance will get 568 shares of Bandhan Bank for every 1,000 shares held. The merger will be subject to regulatory and shareholder approvals.

Gruh Finance is controlled by Housing Development Finance Corporation Ltd, India’s biggest mortgage lender. HDFC owns a 57.83% stake in Gruh Finance. Bandhan Bank counts Singapore sovereign wealth fund GIC Pte Ltd and World Bank arm International Finance Corporation (IFC) among its investors. GIC owned a 4.6% stake in the bank while IFC held 1.8% at the end of September.

The deal comes less than a year after Bandhan Bank went public and a little more than three months after the Reserve Bank of India barred Bandhan Bank from opening new branches without its prior approval for failing to bring down the stake of its non-operative financial holding company to 40% as required under the licensing condition.

Bandhan Financial Holdings Ltd had an 82.28% stake in Bandhan Bank at the end of September, according to stock-exchange data. After the merger, the shareholding of Bandhan Financial in Bandhan Bank will reduce to 61%.

“We have just started on bringing the promoter stake down. It is a long way; we (bank promoters) still have 21% stake to reduce to meet the RBI mandate,” Chandrasekhar Ghosh, CEO and managing director at Bandhan Bank, said at a press conference. “(We) cannot give a timeline.”

Ghosh also said the deal gives the bank an opportunity to build a pan-India affordable housing business. Gruh will get access to a wider distribution network, a larger customer base and low-cost deposit base of Bandhan Bank.

HDFC chairman Deepak Parekh said the merger will create “one of the largest rural and semi-urban lending platforms” in India.

The swap ratio translates into a 2.05% premium for the shareholders of Gruh based on the volume-weighted average prices of Bandhan and the housing finance firm over the 26-week period ended 4 January.

The combined valuation of the merged entity will be around Rs 84,000 crore ($12 billion). Shares of Bandhan Bank fell 5.2% on the BSE on Monday to close at Rs 501.10 apiece, giving it a market value of Rs 59,771 crore. Shares of Gruh Finance slipped 3.9% to close at Rs 306.20 apiece, giving it a market capitalization of Rs 22,436 crore.

After the merger, Bandhan Bank will have outstanding loan book of Rs 50,036 crore. The loan book would consist of micro loans (58%), retail home loans (28%) and other loans (14%). The combined distribution network will comprise 4,182 banking outlets and 476 ATMs across India. The merged entity will have more than 31,000 employees.

Bandhan Bank was one of two lenders to get a banking licence from the RBI in 2014; IDFC Bank was the other. It launched its operations in August 2015.

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