Bandhan Bank began its operations in 2015 and became a popular mortgage-lender catering to the less affluent. The mortgage-lender recently announced its plans of merging with Gruh Finance and was awaiting regulatory and stakeholder approval. The all-share deal which was made for the merger was valued at around Rs 81,000 crore. As per the current arrangement, Gruh Finance will get 568 shares from Bandhan Bank for every 1000 share of its own. This transaction lowers the promoter stake for Bandhan Bank from 61% to 82% which translates to a total of 161 crore shares for Bandhan bank post merging.
Mortgage lending pioneer, HDFC Bank also owns 21% of shares and a plan of action may be demanded by regulators to ascertain what HDFC plans to do given its high stake with Bandhan Bank. The Reserve Bank of India would need to exempt the deal and allow HDFC to own more than 5% stake in Bandhan Bank and also ask for a plan of action to define the timeline and future of the merged entity.
Bandhan Bank has previously failed to adhere to deadlines of lowering promoter holding in spite of the curbs imposed by the central bank. According to RBI license rules, the promoters were required to lower their stakes within 3 years of starting their business and the stipulated time-frame had not been adhered to. It had thus become mandatory for seeking approval by regulators before opening any new branches and remuneration of the Founder and Chief Executive was also put on freeze.
Gruh Finance is a housing finance company offering loans in the affordable housing segment. Over the years it has developed into a profitable and niche business franchisee. It has a retail network of 194 offices situated 11 different states with a primary presence in the western region of India. On the other hand, Bandhan Bank has a majority of its branches in the eastern part of the country and this merge can only help its geographical reach in the coming months. Gruh Finance as stated by HDFC is well-known for its strategies in exploring business opportunities and possibilities to sell its loan assets and opt for any other feasible mode of growth, be it organic or inorganic. Post-merger, Gruh Finance estimates the average tenure of loans to go up from one year to three years. Recent figures reveal Gruh Finance’s market capitalization at Rs. 23,337 crores while Bandhan Bank is valued at approximately Rs. 63,000. For the financial year ending March 31, 2018 Gruh had reported a profit of Rs. 363 crore post as deductions.
Several other experts have estimated that the merger will help attract higher valuation and might even make it a leading entity in the microfinance and rural housing segment. However, it is also true that Gruh Finance has had to pay a heavy price owing to the acquisition by Bandhan Bank while HDFC stands to benefit the most from the deal making it a win-win situation for them.