In a significant development, the National Company Law Tribunal (NCLT) Chennai has approved the merger of IDFC Limited with its banking subsidiary, IDFC First Bank. This approval, received on September 25, 2024, marks a crucial step towards the consolidation of the two entities.
Merger Details and Timeline
The merger involves the amalgamation of IDFC Financial Holding Company with IDFC, which will then be merged into IDFC First Bank. The effective date for this merger has been set as October 1, 2024. IDFC Ltd has informed that it is currently in the process of obtaining a certified true copy of the NCLT order and completing the necessary statutory and regulatory formalities to make the scheme effective.
Shareholder and Regulatory Approvals
This merger has already garnered the necessary approvals from key stakeholders. In May 2024, IDFC First Bank shareholders approved the merger with a significant majority, with more than three-fourths of the equity shareholders voting in favor. Additionally, 99.99% of the Non-Convertible Debenture (NCD) holders also supported the merger through remote e-voting and e-voting.
The Reserve Bank of India (RBI) had given its nod for the reverse merger in December 2023, a critical regulatory approval needed for the process to move forward.
Market Reaction
Following the NCLT approval, shares of IDFC and IDFC First Bank saw a rally, with both stocks increasing by up to 2% and 1%, respectively, on the Bombay Stock Exchange (BSE).
Financial Performance and Future Outlook
IDFC First Bank has been performing well in terms of financial metrics. The bank reported a year-over-year increase of 28.19% in its advances, surpassing its five-year Compound Annual Growth Rate (CAGR) of 17.85%. The bank has also managed to expand its net interest margin continuously over the last three years, with a margin of 5.55% in the last year.
The merger is expected to enhance the financial stability and operational efficiency of the combined entity. IDFC First Bank plans to grow its deposits by 25% CAGR until FY27, as stated by V Vaidyanathan, indicating a positive growth trajectory.
Historical Context
IDFC Limited, initially an infrastructure lender, launched its banking subsidiary, IDFC Bank, in 2015. In 2018, IDFC Bank merged with Capital First, a consumer and MSME-focused non-bank, to form IDFC First Bank, transforming it into a full-service universal bank.
Impact on Shareholders
The merger is anticipated to have a positive impact on the share price of IDFC First Bank. Some market analysts believe that the share price could climb to a three-digit level from its current position, although this remains speculative and subject to various market factors.
In conclusion, the approval of the merger between IDFC Limited and IDFC First Bank by the NCLT marks a significant milestone in the consolidation of these entities. With the effective date set for October 1, 2024, investors and stakeholders are eagerly watching the developments, hoping for a strengthened financial position and improved performance of the combined entity.
