Signaling consolidation in the private banking space, IndusInd Bank and Bharat Financial Inclusion Ltd (BFIL), formerly known as SKS Microfinance, are in the final stage of merger talks. The two companies have signed an exclusivity agreement to hammer out a deal before the end of this financial year.
The merger comes at a time when Bharat Financial is facing stiff competition from banks. The deal will enable IndusInd Bank to expand its retail loan portfolio and also fulfil BFIL’s long-standing ambition to offer banking services. The proposed transaction, through share swap, would create an organization with assets worth Rs 1.26 lakh crore and a customer base of about 1.7 crore, according to June 2017 data.
About Bharat Financial Inclusion Ltd
A widely held company, BFIL has 1,408 branches in 17 states and employs 15,300 people. Founded by Vikram Akula in 1997 as SKS Microfinance, it is the country’s second largest micro-financer. It also became the country’s first publicly-listed microfinance company in 2010. In the past, SKS had a tumultuous time as it faced a repayment crisis in its largest market of Andhra Pradesh and a corporate battle over leadership that ended with the exit of founder Vikram Akula.
Presently, the company has a customer base of 6.8 million and a loan book of around Rs 11,000 crore. It has reported a gross bad loan ratio of 6% at the end of June quarter compared to 0.1% a year earlier, as borrowers failed to repay loans after the demonetization of high value currency in November and December last year. In the three months to June quarter, the company wrote off Rs 176 crore worth of loans and posted a loss of Rs 37 crore compared to a profit of Rs 236 crore a year ago. With such a loss and write off, there were hardly any options left for Bharat Financial apart from a merger.
Since it is a microfinance company, it gives small loans to the unbanked poor, self employed, low income earners. Being a micro lender, it has a disadvantage because the interest charges and spreads are capped and a single borrower cannot take loans from more than two institutions.
About IndusInd Bank
Conceived by Srichand P Hinduja, a leading NRI businessman and head of Hinduja Group, the bank started operations in 1994. The bank’s name was derived from the Indus Valley civilization. The bank’s total deposits and advances amounted to Rs 1,33,673 crore and 1,16,407 crore, respectively. The bank has a network of 1,200 branches and over 2000 ATMs.
Synergies in the merger
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