IDFC Bank, Shriram Capital plan mega merger

Mumbai-headquartered IDFC and IDFC Bank are exploring the option of a merger with Chennai-based financial services company Shriram Group which could create a Rs65,000-crore financial powerhouse.

IDFC and IDFC Bank have been evaluating options of either a buyout or a merger with companies in the financial sector to expand reach and operations.

"A merger with Shriram Group is one of the proposals that IDFC is evaluating but nothing has been finalised yet which could be taken to the board level," a source said.

A merger of the two groups could form a major pan-India player in the financial services sector with total assets worth about Rs65,000 crore (over $10 billion).

Shriram Capital and IDFC Bank are set to begin 90 days of exclusive negotiations next week for an all-stock merger that could create a new financial powerhouse.

The plan is to merge the lending business of the Shriram group, which includes listed companies such as Shriram Transport Finance and Shriram City Union Finance, with IDFC Bank and the unlisted life and general insurance companies with IDFC, according to investment bankers.

Reports said both Shriram Capital, the holding company of the group, and the BSE-listed IDFC will be joint holders of the merged entity.

The board of Shriram Capital will meet tomorrow to discuss the merger issue. IDFC Bank and IDFC did not inform the stock exchanges of any board meetings so far.

A merger would also help Piramal Enterprises efficiently deploy its Rs2,014 crore investment in Shriram Capital, which has Ajay Piramal as its chairman and Rajesh Laddha, former chief financial officer of Piramal Enterprises as managing director and chief executive officer.

However, IDFC Bank being a bank, Piramal Enterprises would not be able to own more than a 10 per cent stake in the merged entity under the Reserve Bank of India's norms on corporates owning stakes in banks.

On the other hand, the merger with Shriram Capital will help IDFC group meet its financial targets and increase retail portfolio.

Also, since most of IDFC Bank's lent to corporates and infrastructure projects, the bank has been aggressively looking at the retail and SME (small and medium enterprises) segments to expand business.

An IDFC Bank statement said the bank kept evaluating opportunities and if anything concrete fructified it would inform the stock exchanges. ''At this point, there is nothing that can be disclosed,'' it said in a statement to the stock exchanges. ''Under the circumstances, we are unable to confirm or deny the news reports. Meanwhile, we cannot comment on market speculations,'' it added.

The listed companies of the Shriram Group also issued a similar statement