IDFC-Shriram merger: What it means for various stakeholders?
A mega merger was started with IDFC and Shriram Group accepting an exclusive conversation. This is significant.
First, it is a mega-financial conglomerate in preparation after HDFC, ICICI and Kotak. For IDFC, the metamorphosis of an infrastructure lender into a universal bank is completed. Finally, for the Piramal Group, which marks an entrance in the commercial bank.
It is expected that the details, but the structure of the holding company is likely to result from the merger of IDFC and Shriram capital.
This will have existing non-banking activities of IDFC (currently in IDFC Ltd) and also life insurance, non-life and distribution activities and distribution of Shriram financial capital products.
Shriram City Union Finance (SCUF) will merge with IDFC Bank to begin, while Shriram Transport will be a wholly owned unit of the holding company and could be merged with IDFC Bank at a later stage or be disintegrated (depending heavily on point RBI view of the possibility for the holding company to own a bank and an NBFC bank
Since its conversion into a bank, IDFC Bank was frank in its aspiration to develop the retail book and launch the label of a lender infrastructure. At present, only 24% of the assets are retail. The Bank had already acquired a small micro corporate finance Grama Vidiyal Micro Finance in the past.
A merger with SCUF, a credit agency for the majority of small borrowers in rural and semi-urban areas, with products ranging from loans to SMEs, two-wheel financing, loans against gold and finance Housing small notes should help expand your business presence.
However, the image of responsibility is expected to worsen when the size of the book is inflated by the merger.
The proportion of the deposits of the total passive bank IDFC is only 18% and the proportion of CASA (account and current saving) is 5.2%. The inability to build a deposit base corresponding to the asset portfolio will affect the margins and SCUF must also comply with regulatory requirements (SLR and CRR).
Moreover, IDFC Bank with a legacy of professional corporate finance and banks from the last recruited private banks, is culturally very different entity compared to the lender targeted in South India, such as Union City Shriram. While a paper on integration seems simple, the reality could collapse for several years.
If the transaction takes place to a value less than 3.5 times the SCUF FY17 book the SCUF shareholders may lose. For existing IDFC Bank shareholders, the short-term increase is subject to the price paid for the SCUF merger.
In the long run, however, once you address integration issues and the imbalance of assets and liabilities, you can expect to gradually carry out a detailed assessment of the lenders.
In the following table, it was assumed that the operation would take place in a small premium at the current market price (3.5x book SCUF, current valuation of 3.3X pound) SCUF and the entity that migrate in accounting for unproductive assets during a Period of 90 days due to the current 120 days.
For Shriram Transport shareholders, institutional ownership of the chapel, the listing exclusion did not do that with a significant premium.
Given the relatively large size of the book, a merger with IDFC Bank is unlikely in the near future, unless dictated by the regulator.
Of the four entities listed, while we certainly do not see backwards for SCUF shareholders, Shriram shareholders may still be able to expect a respite premium during radiation.
For IDFC banking, short-term gains depend on the evaluation paid to merge SCUF, while long-term gains can accrue if the many integration challenges are exceeded within a reasonable time.
For the shareholders of IDFC Ltd. is a clear involvement in the holding company portfolio (despite the accompanying evaluation reduction). Non-financial companies Shriram equity are likely to be part of the holding company IDFC Ltd.