India’s IDFC First Bank slips, IDFC hits record high on merger approval

By VarunVyas Hebbalalu and Siddhi Nayak

BENGALURU/MUMBAI (Reuters) -Shares of private lender IDFC First Bank fell as much as 6% on Tuesday, while those of IDFC rose 6% to record highs after the companies approved a reverse merger aimed at simplifying their corporate structure and easing regulatory compliance.

As part of the deal – coming on the heels of a similar merger between HDFC Ltd and HDFC Bank – non-banking lender IDFC’s shareholders will get 155 shares of IDFC First Bank for each set of 100 shares they currently own in the former.

That values it at 127.02 rupees per share, at a 16.3% premium to IDFC’s last close.

IDFC held a 39.93% stake in the banking arm through IDFC Financial Holdings as of June 30.

The Reserve Bank of India in 2021 allowed IDFC to exit IDFC First Bank as a five-year share lock-in period ended in 2020, paving way for the reverse merger.

First set up in 2014 as IDFC Bank, IDFC First Bank was later formed when the lender and Capital First merged in 2018.

“This was a long pending merger which was stuck due to the complex legal structure of IDFC and hence, took time to unwind,” said Asutosh Mishra, analyst at domestic brokerage house Ashika Stock Broking.

IDFC First Bank’s standalone book value would increase by 4.9% as a result of the deal, the lender said.

IDFC First Bank had a loan book of 1.61 trillion rupees and a balance sheet size of 2.4 trillion rupees as on March 31.

The HDFC-HDFC Bank merger, which created a $40 billion financial behemoth may have been a catalyst to push the approval, said Kranthi Bathini, equity strategist at WealthMills Securities.

($1 = 81.9550 Indian rupees)

(Reporting by Varun Vyas in Bengaluru; Editing by Nivedita Bhattacharjee)