A new entrant in the banking space, Bandhan Bank has acquired HDFC Ltd-promoted Gruh Finance in an all-share deal. On January 7, 2019, the board of directors of Bandhan Bank and Gruh Finance approved the merger subject to regulatory and shareholder approvals. The merger will reduce the promoter stake in Bandhan Bank to 61%, from 82.3% as a first step towards finally reducing to 40% as directed by Reserve Bank of India (RBI) based on norms for holding of promotors in private sector bank. The RBI’s new licensing guidelines stipulates that Bandhan Bank’s promoter will have to reduce stake from 82% to 40% within three years, to 20% within 10 years and to 15% within 12 years of commencing its business. Post-merger, HDFC Ltd will hold 15% stake in the merged entity.

Gruh Finance was incorporated on July 21, as subsidiary of Housing Finance Development Finance Corporation (HDFC). Gruh Finance has reported strong financials. Gruh Finance has been growing well with 20% loan and profit CAGR over FY15 to FY18. The company’s return on equity growth is 30% along and gross non-performing loans of 1.3%, reflecting high stability. It has very low loan disbursement to developers and the stock has steadily risen. The biggest advantage for Gruh Finance is that it has access to a stable source of funding and ability to expand its presence in the eastern region on the back of Bandhan Bank’s branch network. Over the years, Gruh Finance has developed a very profitable and niche business franchisee. Both the entity will now cater to the bottom of the pyramid segment and the acquisition will be complementary from Bandhan’s standpoint. Gruh Finance is one of the few non-banking financial companies that have remained a AAA rated entity for the longest time and has high dividend payout ratio.

Bandhan Bank was incorporated on December 23, 2014 to provide banking services. In FY18, it had reported total income of Rs 55,084.8 million and profit of Rs 13,455.5 million. It has a distribution network of 4,182 banking outlets, 476 ATMs across 34 states. The bank has garnered sizeable retail liabilities within three years of its operations which is the key strength of the bank. Its asset quality is impeccable, has a low-cost micro distribution model, strong and loyal micro-loan borrower base. After the merger, Bandhan Bank would have outstanding loan book of Rs 50,036 crore based on financials of September 2018. Bandhan Bank, being a micro finance entity, enjoys high spread and return on assets of 4.25% trailing compared to 2.5% for Gruh Finance. Post merger, the return on assets of the merged entity is expected to compress.



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