IndusInd Bank confirms deal talks with MFI Bharat Financial


MUMBAI: Mid-sized private lender IndusInd BankBSE 0.05 % today said it is in talks with multiple entities for business expansion, including the widely speculated merger of Bharat Financial Inclusion (BFI).

“…the management has been exploring strategic alternatives, and engaging in discussions from time to time with various parties, including Bharat Financial, as and when required,” the bank said in a late evening exchange filing.

In the statement issued to bourses following media reports that IndusInd and BFI (formerly SKS Microfinance) are likely to announce a merger in an all-stock deal, the bank said the management has been authorised to evaluate strategic opportunities for business expansion.

It soon added that no decision has yet been made in this regard by either the board or any of the committees and also termed the media reports as “speculative”.

As per the reports, the merger ratio is likely to be 10:7, wherein shareholders will get seven shares of IndusInd Bank for every 10 shares of BF. In its clarification to bourses yesterday, BF said it had been exploring various options but termed the media reports as “speculative”.

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 BFI. But off late the buzz has shifted to takeover.
There have been a slew of deals between private sector lenders and MFIs as the former eye 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 yesterday, 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 MFI’s books. A merger can enhance IndusInd’s return on assets by up to 0.25 per cent and make it among the highest in the industry, it said.

BFI 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 per cent and 1.40 per cent 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.