IndusInd Bank Confirms Deal Talks With Microfinance Firm Bharat Financial
Mid-sized private lender IndusInd Bank Ltd. on Thursday said it is in talks with multiple entities for business expansion, including the widely speculated merger of Bharat Financial Inclusion Ltd.
Following media reports that IndusInd and Bharat Financial (formerly known as SKS Microfinance) are likely to announce a merger in an all-stock deal, the bank said in a stock exchange filing that the management has been authorised to evaluate strategic opportunities for business expansion. Accordingly, the bank has been in discussions “from time to time with various parties, including Bharat Financial”, the filing added.
No decision in this regard has been made, either by the board or any of the committees, the bank said, while terming the media reports as "speculative".
According to these reports, the merger ratio is likely to be 10:7, wherein shareholders will get seven shares of IndusInd Bank for every 10 shares of Bharat Financial.
Speculation regarding a deal between the two has been on for many months now and some reports had said the Hinduja Group-promoted bank may be looking at buying a minority stake in Bharat Financial. But of late the buzz had shifted to a takeover. There have been a slew of deals between private sector lenders and microfinance institutions as the former look to expand their network in the hinterland which will help them meet the priority sector lending mandates and offer cross-sell opportunities.
In a note on Wednesday, Australian brokerage Macquarie had said such a merger was positive from a medium-term perspective for the bank but flagged execution as the key given the stress on Bharat Financial’s books. A merger can enhance IndusInd Bank's return on assets by up to 0.25 percent and make it among the highest in the industry, it said.
Bharat Financial already has a business correspondent relationship with IndusInd in Karnataka for many years now. The then SKS had a tumultuous time four years ago as it first faced a repayment crisis in its largest market of Andhra Pradesh and a corporate battle over leadership which ended with the exit of founder Vikram Akula.
If the merger fructifies, it will be the third deal for IndusInd Bank, after Deutsche Bank's credit card portfolio in 2011 and RBS' diamond financing book in 2015. Both IndusInd and BFI counters have seen a rally this year, but the stocks today corrected 0.26 percent and 1.40 percent respectively on the BSE.
Other banks, including IDFC Bank, Kotak and RBL, have either acquired or taken minority stakes in MFIs in past 18 months.