BUSINESS
Post the merger, Vaidyanathan will take over as managing director and CEO of the merged entity and Rajiv Lall will be the non-executive chairman
The merger with Capital First will help IDFC Bank, which is struggling to build its retail franchise, especially on the deposit side, to briskly grow its retail lending operations V Vaidyanathan, chairman of Capital First, who will take over from Rajiv Lall as the new managing director and chief executive officer of IDFC Bank, is known to be aggressive in growing the retail franchise, thanks to the experience he got while running the retail business of ICICI Bank's during its heady days of the bank's growth.
IDFC Bank, which earlier scrapped a deal to merge with Shriram City Union, on Saturday announced its merger with the retail focused NBFC backed by private equity firm Warburg Pincus. The NBFC has more than 5 million customers in retail and small and medium enterprises.
Post the merger, Vaidyanathan will take over as managing director and CEO of the merged entity and Rajiv Lall will be the non-executive chairman.
The scheme of amalgamation, to be effective from April 2018, would see IDFC Bank issuing 139 shares for every 10 shares of Capital First. The arrangement, which is subject to regulatory and shareholder approvals, will be worked out at a 12% discount to IDFC Bank's valuation, based on its market capitalisation of Rs 23,019 crore on Friday. Following the arrangement, existing shareholders of IDFC Bank and Capital First will retain ownership shares of about 71.2% and 28.8%, respectively.
Vaidyanathan founded Capital First through a management buyout of a listed NBFC by securing equity backing from Warburg Pincus of Rs 810 crore. The market capitalisation of Capital First has grown tenfold since the buyout – from Rs 780 crore on March 31, 2012 to over Rs 8,000 crore at present. Vaidyanathan holds 10.5% in Capital First.
Post the merger, Vaidyanathan said in a release, "We have always said publicly that a banking platform provides a stable, diversified liability base and is hence critical for building a large franchise. We are excited about this merger because IDFC Bank provides a perfect platform for continued growth of the combined franchise, supported by low-cost funding."
Capital First brings with it a retail lending franchise with a loan book of Rs 22,974 crore (September 2017), a customer base of three million customers; and a distribution network in 228 locations across the country. IDFC Bank's loan book is still largely focused on infrastructure and corporate loans. Its asset quality is also poorer than capital first. The gross NPAs of IDFC Bank are over 3%, while those of Capital First are only at 1.63%.
Post-merger, the combined entity of IDFC Bank and Capital First will have an assets under management of Rs 88,000 crore; and profit after tax of Rs 1,268 crore (FY 17); and a distribution network comprising 194 branches (as per branch count of December 2017 of both entities), 353 dedicated BC outlets and over 9,100 micro ATM points, serving more than five million customers across the country.
Over the past 13 years, Rajiv Lall has led the growth of the IDFC Group variously, as MD and CEO of IDFC Ltd from 2005-13, as executive chairman of IDFC Group from 2013-15, and as founding MD and CEO of IDFC Bank from 2015 to the present.
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