Private-sector lender IndusInd Bank Ltd has entered into an exclusive pact to explore the acquisition of microfinance institution Bharat Financial Inclusion Ltd.
The two lenders said in stock-exchange filings on Monday that they will discuss the proposed “potential strategic combination by way of amalgamation” or any other suitable structure.
The agreement provides for confidentiality of information and finalisation of the terms and conditions relating to the proposed transaction with a view to signing a definitive pact.
The proposed transaction would be subject to due diligence, approval of the boards, shareholders, regulatory and other third-party approvals, the filings said.
Shares of IndusInd Bank jumped 5.6% on Monday, giving it a market capitalisation of $16.7 billion. Shares of Bharat Financial climbed 3.3%, valuing the company around $2.1 billion. If the merger goes through, this would be the third-biggest deal in the Indian banking sector.
The bigger deals were HDFC Bank’s acquisition of Centurion Bank of Punjab in 2008 and Kotak Mahindra Bank’s purchase of ING Vysya Bank in 2014.
Bharat Financial, earlier known as SKS Microfinance Ltd, had said in May that it was exploring talks with a few banks to see the viability of a takeover or a partial stake sale to a strategic investor.
At the time, managing director MR Rao had said that the firm was evaluating options for both a share swap or an all-cash deal. It was in talks with IndusInd Bank, IDFC Bank Ltd and RBL Bank.
IndusInd Bank, founded by the London-based billionaire Hinduja brothers, commenced operation in 1994. It caters to both consumer and corporate customers. As of December 2016, it had 1,075 branches and 1,960 cash withdrawal machines across India. It also has representative offices in London, Dubai and Abu Dhabi.
The bank had deposits of Rs 1,26,572 crore at the end of March, according to an investor presentation. This was double from the level three years before. Its revenue was Rs 10,234 crore at the end of March. From 2014 to 2017 the bank had embarked on a plan to double its assets and improve market profitability, it said at the time.
Also in March, it had agreed to acquire IL&FS Securities Services Ltd for an undisclosed amount to help create differentiated businesses.
Previously, in April 2015, IndusInd had acquired the diamond and jewellery financing business and related deposit portfolio of Royal Bank of Scotland NV in India. The size of the portfolio was about Rs 4,100 crore.
In 2011, it had bought Deutsche Bank’s loss-making credit card business in India for an undisclosed sum.
RBL Bank and IDFC Bank have previously acquired stakes in other microfinance companies. RBL Bank had bought into Varanasi-based Utkarsh Micro Finance Pvt. Ltd and Swadhaar FinServ Pvt. Ltd. IDFC Bank had picked up a stake in ASA International India Microfinance Pvt. Ltd and acquired Trichy-based Grama Vidiyal Microfinance.
A few other non-banking financial companies have also been in talks to merge with private banks to grow. In July, the Shriram Group and IDFC Bank had started merger negotiations. VCCircle reported last month that Manappuram Finance Ltd had attracted interest from a private lender and financial services group seeking to buy a large stake in the company.
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