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IDFC First Bank to Merge with IDFC Ltd in 155:100 Share Exchange Ratio

IDFC First Bank and IDFC Ltd have announced their merger plans, with a share exchange ratio of 155 equity shares of IDFC First Bank for every 100 equity shares of IDFC. The merger aims to simplify the corporate structure, increase the book value per share, and streamline regulatory compliances. The merger is expected to be completed in the current financial year, subject to unforeseen circumstances.

Background:

In March 2023, IDFC Ltd and IDFC Financial Holding Company Ltd appointed Axis Capital Ltd to determine the fairness of the share exchange ratio for the merger. The companies have completed all stages of corporate simplifications, with the amalgamation with IDFC First Bank being the next step. To facilitate the merger, registered valuers and legal experts were appointed to provide recommendations and conduct due diligence.

Benefits of the Merger:

The merger is expected to increase the book value per share of IDFC First Bank by 4.9 percent, based on audited financials as of March 31, 2023. It will consolidate IDFC FHCL, IDFC Limited, and IDFC First Bank into a single entity, simplifying the corporate structure. Additionally, the merger will result in a diversified shareholder base, similar to other large private sector banks, with no promoter holding.

Financial Details:

As of June 30, 2023, IDFC Limited, through its non-financial holding company, holds a 39.93% shareholding in IDFC First Bank. IDFC Ltd had previously received in-principle approval to invest approximately Rs 2,200 crore in IDFC First Bank, increasing its equity holding from 36.38 percent to a maximum of up to 40 percent.

Growth and Regulatory Compliance:

IDFC First Bank has witnessed significant growth in its deposit franchise, with a 4-year compound annual growth rate (CAGR) of 36 percent. By March 31, 2023, the bank’s deposit franchise reached Rs. 1.36 lakh crore.

The bank has also improved its current account and savings account (CASA) ratio from 8.6 percent at the time of its merger with Capital First in December 2018 to 49.77 percent by March 2023. This merger will ensure compliance with RBI rules, requiring the non-operative financial holding company’s shareholding, which is the bank’s promoter, to be a minimum of 40 percent of the paid-up voting equity capital, locked in for five years from the commencement of the bank’s business.

Key Points about IDFC First Bank

  • IDFC First Bank is a prominent banking institution in India.
  • The bank was formed through the merger of IDFC Bank Ltd and Capital First Ltd in December 2018.
  • IDFC First Bank has witnessed significant growth in its deposit franchise, with a 4-year compound annual growth rate (CAGR) of 36 percent.
  • As of March 31, 2023, the bank’s deposit franchise reached Rs. 1.36 lakh crore.
  • The bank has focused on increasing its current account and savings account (CASA) ratio, which improved from 8.6 percent at the time of the merger to 49.77 percent by March 2023.
  • The merger with IDFC Ltd aims to simplify the corporate structure by consolidating IDFC FHCL, IDFC Limited, and IDFC First Bank into a single entity.
  • The merger is expected to increase the book value per share of IDFC First Bank by 4.9 percent, based on audited financials as of March 31, 2023.
  • The merger will help create a diversified shareholder base, similar to other large private sector banks, with no promoter holding.
  • IDFC Limited, through its non-financial holding company, currently holds a 39.93% shareholding in IDFC First Bank.

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