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IDFC, Capital First like deals may spice up banking space in coming years

Author: Debasis Mohapatra/Tuesday, January 16, 2018/Categories: Banking & Financial Services

IDFC, Capital First like deals may spice up banking space in coming years

Mumbai: Merger of IDFC Bank with non-finance banking company Capital First may be the precursor for many more such deals in coming years as financial institutions look at strengthening their footholds in varied segments.

According to analysts, though this could not be considered as a trend, but there is a distinct possibility of more mergers and acquisitions in banking space going ahead.

“This couldn’t be termed as a trend as of now. But, possibilities of such deals in the near future couldn’t be overruled. Every merger and acquisition deal in banking sector will be transaction specific,” Group head- Financial sector ratings at rating agency ICRA told The Finapolis.

As banks look at expanding their retail deposit base, inorganic expansion would definitely be explored, he said adding that banks buying out microfinance institutions could be one such example.

Last week, IDFC Bank and Capital First announced merger to form a combined entity with assets under management of more than Rs 88,000 crore in a share swap arrangement. According to the deal, the swap ratio will be 139 shares of IDFC Bank to every 10 shares of Capital First.

The merger will help the new entrant in the banking space- IDFC to strengthen its retail deposit base which is traditionally high on corporate loans. The combined entity will have a distribution network of 194 branches along with 353 dedicated business correspondent outlets. IDFC Bank will also receive a retail lending franchise with a loan book of around Rs 23,000 crore of Capital First post this merger.

IDFC Bank with a current account, savings account (CASA) deposit base of around 8% will also see growth in its low cost deposit base due to this deal.

In a bid to increase retail deposit base, banks and non-finance banking companies have acquired many small finance entities in recent years. Last year, while Kotak Mahindra Bank had acquired BSS Microfinance for Rs 139 crore, IDFC Bank had bought out a Tamil Nadu- based microfinance institution (MFI), Grama Vidiyal.

Even in search of scalability, Kotak Mahindra Bank had acquired ING Vysya Bank for Rs 15,000 crore in an all stock deal in 2014.   

As credit growth in the banking system picks up with economic recovery gathering pace, analysts see many more such deals in coming days.   

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