A Merger of Affordable Housing & Loans: Bandhan Bank Acquires Gruh Finance
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On January 7, 2019, Bandhan Bank announced that HDFC-backed housing finance firm, Gruh Finance is merging with it in an all-share swap deal valued at approximately INR 81,800 crore. Following the acquisition is completed, Gruh shareholders will get 568 shares of Bandhan for every 1,000 shares held. The deal has reduced the promoters’ stake in Bandhan Bank to 61 per cent from 82 per cent.
The deal has brought the shareholding of non-operative financial holding company closer to the regulatory compliance. Recently, the Reserve Bank of India withdrew the bank’s permission to open new branches stands due to failure in bringing down the promoters’ shares to 40 per cent. The remuneration of the firm’s Managing Director and CEO was also frozen.
The merger will prove to be beneficial for HDFC Limited as it will end up owning close to 15 per cent in Bandhan Bank in exchange of its holding in Gruh Finance. As of now, the banking company owns 57.83 per cent in the housing finance firm but to claim the legitimate share percentage, HDFC needs RBI’s approval because only 5 per cent automatic stake under such acquisitions is permitted.
The deal would help both the Bandhan Bank and Gruh finance as the latter promotes affordable housing whereas former provide loans for the same, enhancing the idea of secured home loans. Moreover, the merger will help Bandhan bank, which was so far present in eastern parts of the country with 938 branches, expand its geographical presence to the western region, where Gruh is majorly present.
While the merger works in favour of Bandhan Bank in more ways than one, investors seem unhappy with the deal ratio. In an unfortunate event, shares of both the Bandhan Bank and Gruh Finance tumbled a day after the deal was announced. Gruh Finance stock fell down around 17 per cent to adjust to the merger swap ratio whereas Bandhan’s stock fell over 5 per cent.
The merger is said to be jinxed due to the fact that Gruh investors are not happy with the acquisition. Notably, Gruh’s profitability was higher than its peers, even those which are bigger in size. While many would have preferred for the firm to run as a stand-alone entity, HDFC took the end call as it was getting a good deal for selling its stake.
Apart from being the first bank to set up in the eastern part of India post-Independence, Bandhan Bank is an Indian microfinance entity to transform into a universal bank. It received the 'in-principle' approval from the RBI in April 2014 followed by a final nod came on June 17, 2015. The bank commenced its operations on August 23, 2015, with 501 branches, 2,022 Door Step Service Centers (DSCs) and 50 ATMs across 24 Indian states.