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IndusInd Bank in race for IL&FS units, to complete Bharat Financial merger soon
Photo Credit: VCCircle

IndusInd Bank is still in the running to acquire two units of the debt-strapped Infrastructure Leasing and Financial Services Ltd (IL&FS) and hopes to complete the acquisition of microlender Bharat Financial Inclusion Ltd next month, its chief executive said on Wednesday.

Romesh Sobti, also the managing director at IndusInd Bank, said the merger of Bharat Financial with the bank is likely to receive final regulatory approvals by the end of February.

Sobti, who was speaking at a press conference to announce the bank's results for the October-December quarter, said the merger has been approved by 99.99% of the shareholders.

The National Company Law Tribunal will give its final order after meeting the shareholders and the Reserve Bank of India (RBI) is also likely to give its final nod. “All of this should be through in February,” he said.

The bank hopes to announce the completion of the merger when it discloses financial results for the January-March quarter, he said. 

In a 31 October directive, the NCLT had said it would hold a meeting of the equity shareholders and secured creditors for approving the transaction. A majority of the shareholders voted in favour of the merger of the microfinance company with IndusInd Bank in a meeting on 11 December.

IndusInd Bank had decided to acquire Bharat Financial (formerly known as SKS Microfinance) in October 2017 through an all-stock transaction.

The merger had received approval from the Competition Commission of India in December 2017 and a provisional nod from the RBI last year.

In June 2018, the microlender also got a no-objection nod from stock exchanges for the merger.

Mumbai-listed Bharat Financial was India’s first microlender to go public when it floated its initial share sale in 2010. It has presence across 16 states.

After the merger, the new entity will have 4,000 branches and outlets, 16.3 million customers and 40,355 employees.

IL&FS assets

Sobti confirmed that IndusInd Bank is still in the race to buy two subsidiaries of IL&FS. The two arms on the block are IL&FS Securities Services Ltd and ISSL Settlement & Transaction Services

IndusInd Bank had almost completed the acquisition of IL&FS Securities, said to be valued at around Rs 1,500 crore, but the deal was called off after the new management at IL&FS under Uday Kotak took charge and put up the subsidiaries and other assets on auction.

“We have done the valuation and we know the business thoroughly as we had evaluated it before the deal was called off. It would not have changed much,” Sobti said.

Provisions towards IL&FS

Sobti said the bank’s exposure to IL&FS of Rs 3,000 crore remains “standard” on its books and it has made a total provision of Rs 600 crore so far. This provision is on the Rs 2,000 crore loan given to the holding company IL&FS Group.

In the quarter ended December, IndusInd Bank made a contingency provision of Rs 255 crore and will evaluate the realizable value of the assets to make provisions in the quarter ending March 2019.

It had made Rs 275 crore worth of provisions in the quarter through September. Additionally, a floating provision—part of profits kept for contingencies—of Rs 70 crore was kept aside.

Sobti said the IL&FS account will likely be classified as non-performing asset in the next quarter.

“There are overdues. Prior to October, there were monies held by banks for servicing the debt. They were in the form of escrows or debt service reserve accounts or fixed deposits etc. And they were used to service these debts.”

IL&FS Group is going through a crisis ever since some group companies defaulted on their debts in September. This rattled financial markets and prompted the government to supersede its board. The management is now selling assets and taking other measures to revive the group.

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