The Reserve Bank of India (RBI) has approved the merger of debt financing firm Capital First with IDFC Bank in a deal valued at around $1.5 billion. The merger is expected to be completed in a period of 4 to 5 months. Following the merger, the resulting company will have a diversified portfolio with clients ranging from large corporates to small and medium business firms.
Following RBI’s approval for the merger, the shares of both companies increased by about 3% to 5% in the share market.
Receiving the nod from RBI is only the first step in the amalgamation process. The merger still has to get approval from the Competition Commission of India (CCI), National Company Law Tribunal (NCLT), National Housing Board (NHB), and other statutory and regulatory bodies in India. In addition to this, market regulator SEBI has to approve the deal between these two lenders.
Under this transaction, all entities of Capital First including Capital First Home Finance, and Capital First Securities will be merged with IDFC Bank. According to industry experts, the total assets under management (AUM) of the merged firm will be about Rs.88,000 crore.
IDFC’s holdings in the merged entity will be about 38% as against RBI’s requirement of 40%. According to Vaidyanathan, Founder and Executive Chairman of Capital First, IDFC has to buy from the market directly, or through any other route before the merger is fully consummated.
The deal will allow IDFC to gain a foothold in the retail banking segment, where it is lagging behind other lenders in the country. Vaidyanathan also noted that the NCLT approval is expected to happen within the next 4 to 5 months.
Once the deal is complete, Vaidyanathan will take over as the Chief Executive Officer and Managing Director of the amalgamated entity, which is yet to be named. This all-share transaction between IDFC and Capital First was originally announced in January following approval from the Board of both companies.