Pawneshwar Dutt Rai

Pawneshwar Dutt Rai

The Reserve Bank of India (RBI) granted its approval to HDFC Bank last week to acquire a share of maximum 9.9% of the Bandhan Bank paid-up capital, with effect from the date of the proposed amalgamation between the two entities. This was in reply to the earlier application made by HDFC to RBI (post the announcement of the proposed deal) to hold shares in the Bandhan Bank.

However, the said amalgamation scheme is subject to further approvals from the shareholders of Bandhan Bank and Gruh Finance ( where HDFC has a stake of 57.9%), as well as from the National Company Law Tribunal (NCLT).

What is the significance of this deal for both the entities?

It is to be noted that Gruh Finance, the housing finance arm of HDFC that deals predominantly in the affordable housing segment, was acquired by Bandhan Bank in January 2019 through a share-swap deal. This acquisition was important for Bandhan Bank in many ways. From its inception itself, Bandhan Bank has been finding it challenging to adhere to the regulatory mandate of reducing its promoter share from the existing 82.28% (it should not go beyond 40%, according to the prevailing licensing conditions). As a result, Bandhan Bank was not allowed by RBI to set up new branches and was even restricted from compensating the promoters at this level.

The proposed deal is expected to help the Bandhan Bank immensely to lower its promoter holding down to 60.27%. Although it requires reducing the same to 40% or below, once the deal is accomplished, Bandhan would surely hope to receive some liberty and subsequently, the much-needed regulatory nod to set up new branches.

The Bandhan Bank has also been keen for a while to develop the non-micro loan section and is now expected to enter this segment more aggressively with low-risk home products, post this merger. It is also going to be benefitted from the combined customer base of the new entity in the affordable housing segment in central and western India.

HDFC is a winner too as it has been able to sell its stakes at a much higher premium than anticipated (as can be determined from the stated share swap ratio of the deal).  Also, now it will be in a much better position to swoop aggressively into the competitive low-income/affordable housing segment of the Indian home loan marketplace, without worrying too much about overlapping or competing with its own subsidiary.

This is good news for the potential home borrowers, particularly in the affordable housing segment. More lending is expected to flow, targeting the low-income groups and economically weaker sections of society.

This guest post is written by Pawneshwar Datt Rai. Pawneshwar Datt Rai is a Director and head of marketing at “Afinoz Digitalizing Finance (AFINOZ.COM)”. A management certified professional from Santa Clara University, California; he do the threadbare analysis of business models. He is famous and acknowledged by his result driven initiatives. He has strong entrepreneurship skills with a unique mix of creative, analytical and strategic skills.

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