Move to help bank cut promoter stake from 82.3% to 61%

Gruh Finance, the affordable housing finance arm of mortgage lender HDFC, will be merged with Bandhan Bank — the newest commercial bank. The move would help the latter to cut promoter stake from 82.3% to 61%.

According to the deal, 568 equity shares of face value of ₹10 each of Bandhan Bank is to be issued for every 1,000 equity shares of a face value of ₹2 each of Gruh. The deal is subject to regulatory approvals. The swap ratio implies a 2.05% premium to the shareholders of Gruh. The combined entity is valued at ₹84,000 crore.

RBI curbs

The Reserve Bank of India (RBI) had imposed restrictions on Bandhan in terms of branch expansion and the remuneration of its MD & CEO Chandra Shekhar Ghosh, for inability to bring down promoter stake to 40% within three years of starting operations — a condition stipulated while granting bank licence in 2015. Bandhan Financial Holdings Limited, the non-operative financial holding company, is the promoter of the bank. Mr. Ghosh declined to comment on when Bandhan would be able to bring down the promoter stake to 40%, during the press conference to announce the deal.

Post the deal, HDFC will have 14.9% stake in Bandhan Bank. According to norms, any entity will need to take RBI approval for holding more than 10% stake in a bank. “This is a financial investment for HDFC,” HDFC chairman Deepak Parekh said, adding that if RBI did not allow it to hold 14.9%, then it would bring down the stake in Bandhan below 10%. HDFC is also the promoter of HDFC Bank, where it has 22% stake.

“Our investment in HDFC Bank is a strategic one while here it is a financial investment,” said Keki Mistry, vice chairman, HDFC.

“When we assessed the way forward for the company, we came to the conclusion that no other alternative would give Gruh the ability to scale up operations better than the platform that Bandhan Bank was offering,” Mr. Mistry said, adding that HDFC would prefer to avoid any potential conflict of interest within its group companies that may arise in future due to market and customer segment overlap.

Post-merger, Bandhan Bank’s loan book’s assets under management will be ₹50,036 crore. Loan book will consist of micro loans (58%), retail home loans (28%) and other loans (14%).

The combined distribution network would comprise 4,182 banking outlets and 476 ATMs across India.