Financial services conglomerates IDFC Group and Shriram Group said on Saturday they have signed a 90-day confidentiality and exclusivity agreement for a potential merger of certain business and subsidiaries of the two groups.
IDFC Bank Ltd, Shriram City Union Finance Ltd, Shriram Asset Management Co. Ltd and Shriram Transport Finance Co. Ltd said in separate stock-exchange filings that their boards have given in-principle approval to evaluate a potential combination of some group companies engaged in credit and non-credit businesses.
The talks could result in Shriram Group’s consumer lending arm merging with IDFC Bank. Shriram Transport, besides the unlisted life and general insurance firms, might fall under IDFC Ltd and operate as standalone companies.
The contours of the merger are being worked out and the companies have yet to decide a share-swap ratio. Any deal will be subject to various regulatory approvals.
The merger proposal will need clearances from the Reserve Bank of India, the Securities and Exchange Board of India, the Competition Commission of India and the Insurance Regulatory and Development Authority of India, said Ajay Piramal, chairman of Piramal Enterprises Ltd and Shriram Capital Ltd, the flagship company of Shriram Group.
Shriram Capital operates Shriram City Union and Shriram Transport. Piramal Enterprises owns a 20% stake in Shriram Capital and a 10% stake each in Shriram Transport and Shriram City Union.
A successful merger deal between the groups will see Shriram Transport getting de-listed from the stock exchanges. The combined entity will be named IDFC Shriram and will have a market value of around Rs 73,000 crore ($11.25 billion).
The market value of IDFC at Friday’s closing share price was Rs 9,560 crore and that of IDFC Bank was Rs 22,021 crore. The market capitalisation of Shriram City Union was Rs 16,403 crore and that of Shriram Transport was Rs 24,747 crore.
IDFC Bank had started operations in October 2015 and listed on the bourses the following month. It started off as the seventh-largest private sector lender and 10th-largest bank by market value.
IDFC Bank has been striving to establish a strong retail franchise and had said that acquisitions would be a part of its strategy to increase its customer base. In 2016, IDFC Bank acquired Grama Vidiyal Micro Finance, which gave it access to 1.2 million rural and semi-urban households in Tamil Nadu, Kerala, Karnataka, Puducherry, Maharashtra, Gujarat and Madhya Pradesh.