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May 18, 2024

IDFC Ltd and IDFC First Bank Merger Approved by Debt and Equity Holders

In a landmark decision, shareholders and non-convertible debenture (NCD) holders of IDFC First Bank have overwhelmingly approved the merger of its parent company, IDFC Ltd, with the lender. The approval was granted during a meeting convened by the National Company Law Tribunal (NCLT) on May 17, which utilized video conferencing and other audio-visual means to facilitate the process. This crucial step marks a significant move towards consolidating the operations of IDFC Ltd and IDFC First Bank under a single entity.

The bank announced the approval in a regulatory filing, revealing that the resolution to approve the composite scheme of amalgamation was passed by an impressive majority. Specifically, 99.95 percent of equity shareholders, representing more than three-fourths of the equity shareholders by value, voted in favor of the merger. This approval process adhered to the provisions outlined in Sections 230-232 of the Companies Act, 2013.

In a separate filing, it was disclosed that 99.99 percent of NCD holders also voted in favor of the merger proposal, indicating robust support across all investor categories.

The amalgamation scheme involves a two-step process. First, IDFC Financial Holding Company Limited (IDFC FHCL) will merge with IDFC Ltd, followed by the merger of IDFC Ltd with IDFC First Bank Ltd. This reverse merger scheme stipulates that an IDFC shareholder will receive 155 shares of IDFC First Bank for every 100 shares held in IDFC Ltd. Both companies’ shares hold a face value of Rs 10 each.

IDFC Ltd, originally an infrastructure lender in the private sector, made its foray into the banking sector following the footsteps of larger peers like ICICI and IDBI. The company received in-principle approval from the Reserve Bank of India (RBI) in April 2014 to establish a bank. Consequently, IDFC Bank was launched in October 2015 as part of the RBI’s on-tap licensing regime, transferring the loans and liabilities from IDFC Ltd to the new banking entity.

Despite these efforts, IDFC Bank struggled to make a significant impact in the market. In December 2018, the bank acquired Capital First, a non-banking financial company (NBFC) focused on consumer and MSME lending since 2012. This acquisition led to the rebranding of the entity as IDFC First Bank, transforming it into a full-service universal bank.

The newly merged IDFC First Bank will resemble HDFC Bank in that it will not have a promoter entity but will be fully owned by institutional and public shareholders. This structure aims to enhance transparency and governance, aligning with global best practices.

The merger is expected to streamline operations, reduce redundancy, and enhance the financial stability of the combined entity. This consolidation is anticipated to leverage the strengths of both organizations, providing a robust platform for future growth and expansion.

With the overwhelming support from both equity shareholders and NCD holders, the merger is set to pave the way for a stronger, more resilient IDFC First Bank. The next steps will involve obtaining the final nod from regulatory authorities and completing the integration process, which will mark the beginning of a new chapter for the bank in the Indian financial landscape.

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This strategic merger underscores the ongoing evolution in the banking sector, where consolidation is seen as a vital strategy for achieving scale, efficiency, and enhanced customer service. The newly formed entity is poised to better serve its clients and stakeholders, driving growth and innovation in the competitive banking industry.

Jhumpa Lahiri

Jhumpa Lahiri

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