The proposed merger between Capital First and IDFC Bank will have to pass all regulatory hurdles. The merged organization will have to raise a whopping Rs. 4, 000 crore in order to adhere to regulatory guidelines and obligations linked to liquidity. The buyout organization will also have to slash its stake by almost ½ of a percentage point approximately. The newly formed bank will have to purchase government bonds in higher numbers in order to adhere to the SLR (statutory liquidity ratio) and keep funds aside as its CRR (cash reserve ratio) which is essentially the proportion of total deposits that all Indian banks have to maintain with the apex bank or the RBI (Reserve Bank of India).
Experts state that Rs. 5-6, 000 crore could be an estimated sum required by the merged entity in order to have the merger go through without running into regulatory headwinds. The combined entity, as per reports, already has surplus SLR and CRR of more than Rs. 2, 000 crore and getting hold of another Rs. 3-4, 000 crore should not be too difficult as per experts. The newly formed entity has not got its official name as of yet. The focus will be firmly on retail and V Vaidyanathan will head the new entity as per reports.
The partners are planning to create a mega bank with asset sizes exceeding Rs. 88, 000 crore along with 194 branches in total and more than 5 million customers. IDFC Bank’s shareholders will be getting a share of Capital First for every 13.9 shares held by them. Warburg Pincus owns approximately 35% in Capital First and it will have to sell some stocks in order to adhere to regulatory guidelines for banks. No entity can own in excess of 10% of a bank other than its promoter and minus dilution, the stake of Warburg Pincus in this new entity will be around 10.5%. IDFC will also have to purchase more shares since the holdings will go below the regulatory 40% mandated by the RBI when it received the banking license back in the year 2014. The stake will be around 36-37% in the new firm and increasing this to the required 40% will necessitate investments of around Rs. 1, 000-1, 200 crore. No jobs will be lost as a result of this merger.