“The plan of reverse merger is back on the table and efforts are being made to reorganise the holding company in such a way that they become eligible not to have a holding company structure. The request could be made to the regulator as early as next month,” an official aware of the matter said on condition of anonymity.
IDFC First Bank and IDFC did not respond to queries.
Under banking guidelines, a Non-operative Financial Holding Company (NoFHC) is required to house a bank and other financial services units of a promoter. IDFC will argue that it doesn’t have any other significant businesses apart from the bank.
The move is also expected to benefit IDFC Ltd shareholders and unlock value, according to the people cited above.
Such a plan was first envisaged in 2016 after the RBI had said that the formation of a holding company was not mandatory for new universal banks. While this was not applicable to the erstwhile IDFC Bank, it had planned to seek special exemption from the regulator. The plan was shelved after it went through an unsuccessful merger exercise with the Shriram Group.
It later merged with erstwhile Capital First to create IDFC First Bank at the end of 2018. The lender completes five years of operations at the end of September after having secured its banking licence in 2014. IDFC Ltd, the holding company and promoter of IDFC First Bank, holds 40 per cent of the lender. The 40 per cent stake has a five-year lock-in period, which ends on September 30, 2020, after which it should be lowered to 15 per cent within 10 years as per the current licensing norms. In anticipation, IDFC’s shares have gained almost 30 per cent in the last three trading sessions to Rs 26.25.
“The reverse merger could lead to value unlocking and remove the holding company discount. IDFC shareholders have lost out after the demerger as they do not have a direct line of sight to the operating earnings of the bank,” said one of the people cited above said. “Shareholders are expected to benefit if the plan goes through.”
After IDFC got its banking licence in April 2014, it went through a complex demerger process of the then existing business that involved transfer of assets and liabilities from the parent to a new banking company. IDFC Ltd shareholders who got one share of IDFC Bank for each share of the infrastructure finance company lost out as the stock was trading at a considerable discount.
Download The Economic Times News App to get Daily Market Updates & Live Business News.
- Equitas mulls merger with NBFC to pare promoter stake
- How is Motherson going to change post SAMIL merger
- Electrosteel Castings, Srikalahasti Pipes boards approve merger
- LVMH, Tiffany bury the hatchet, finally seal bitter merger at lower price
- Samsung heir charged with fraud over 2015 merger
- How India’s biggest bank merger would stack up in numbers
2 Comments on this Story
Suresh Kamath74 days ago
All such Plans are good BUT whenever there is a Clarification asked for all deny these "as speculation " and later such Info gets the Nod and things are REAL BUT till then Minority Investors are always in the DARK till it dawns as reality and such Minority are LOSERS ALL the time
Santhosh75 days ago
IDFC First Bank has intimated the BSE and NSE exchanges saying the information in this article is purely speculative