The board of IDFC First Bank Ltd. has given a green light for the merger of IDFC Ltd. and IDFC Financial Holding Co. with the bank, as disclosed in an exchange notice released on Monday. However, this merger is subject to final approvals from regulatory bodies and other statutory entities.

Merger Mechanics and Share Swap Ratio

This merger plan includes IDFC Financial Holding Co. and IDFC merging into the bank and the reduction of the bank’s securities premium account. As for the share swap ratio, IDFC First Bank will issue 155 shares for every 100 shares held by IDFC.

IDFC, the parent company, currently has a 39.93% stake in IDFC First Bank through IDFC Financial Holding Co. This shareholding will cease upon the merger’s completion.

Implications of the Merger

The bank anticipates that the merger will foster an institution with a diverse range of public and institutional shareholders, similar to other substantial private sector banks, leaving no promoter holding. This announcement from IDFC First Bank comes shortly after HDFC Ltd.’s merger with HDFC Bank Ltd. on July 1.

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According to the Reserve Bank of India’s (RBI) licensing guidelines, IDFC, as the promoter, had to maintain a minimum 40% equity stake in IDFC First Bank for five years from the start of operations. This lock-in period has now ended, enabling the merger.

Past Challenges and Future Prospects

IDFC Bank commenced operations in 2015 after receiving an in-principle licence from the RBI in 2014. It then merged with non-banking finance company Capital First Ltd. in 2018. The forthcoming amalgamation will result in IDFC Ltd.’s shareholders directly holding shares in IDFC First Bank, simplifying the shareholding structure.

Last year, IDFC shareholders voted out Chairman Vinod Rai due to a delay in selling the company’s asset management business, which was seen as a hindrance to the merger with the bank. Despite past challenges, the merger signifies a step forward for IDFC First Bank.

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