Newest Indian bank plans RM48b merger to meet rules

MUMBAI • Bandhan Bank Ltd, India’s newest lender, will combine with mortgage financier Gruh Finance Ltd in a US$11.7 billion (RM48.2 billion) deal, bringing the bank closer to meeting shareholding rules and helping it accelerate expansion.

Investors in Gruh Finance, controlled by Housing Development Finance Corp (HDFC), India’s biggest mortgage lender, will get 568 shares of Bandhan Bank for every 1,000 they own, according to exchange filings from the companies. The deal is valued at about 818 billion rupees (RM48.2 billion), calculations based on closing share prices on Monday showed.

The transaction is meant to help Bandhan Bank founder and CEO Chandra Shekhar Ghosh comply with the Reserve Bank of India’s (RBI) ownership rules, and will also allow the micro lender to expand into a new category of loans. India’s regulator has censured lenders for not meeting norms as the central bank tries to clean up an industry that’s been plagued by as much as US$210 billion of stressed assets.

Shares of Gruh Finance tumbled about 16% yesterday as the share-swap ratio was at a discount to its Monday closing price. Bandhan Bank lost 3.7%, as the deal prompted investors to reassess the value of the lender, according to Bunty Chawla, an analyst at Batlivala & Karani Securities Pte Ltd in Mumbai.

“With the swap ratio finalised, now the price for Gruh Finance will be completely dependent on the Bandhan Bank share price”, which looks overvalued given its price-to-book ratio, according to Chawla. The bank is trading at more than six times the book value of its assets, data compiled by Bloomberg show.

Others see the deal as positive for Bandhan and Gruh Finance as well as HDFC. The merger will boost the three lenders’ profiles, resolve conflicts of interest and accelerate expansion in affordable housing, according to analysts at Sanford C Bernstein & Co and Citigroup Global Markets Inc.

“Diluting shareholding is just one benefit of this merger; the main purpose is to grow our business in the best way possible,” Ghosh said at a media briefing in Mumbai on Monday. “We have a strong presence in the east of the country, Gruh Finance has a good network in the west. It is good for both of us.”

The founding group’s — Bandhan Financial Holding Ltd — stake in the lender will fall to 61% from 82% after the combination. The central bank imposed penalties on the Bandhan Bank after it missed a September deadline to bring the group’s holding in the lender down to 40%, in line with bank ownership norms. The RBI froze any further increases in his pay and withdrew the bank’s right to open new branches without seeking prior approval. — Bloomberg