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Bandhan Bank to buy Gruh Finance in share-swap deal
January 11, 2019
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KOLKATA: India’s Bandhan Bank Ltd will buy mortgage provider Gruh Finance Ltd in a share-swap deal to build up its housing loan portfolio, the companies said.

The deal will also help Bandhan Bank’s main shareholder, Bandhan Financial Holdings Ltd, reduce its stake in the lender to just above 60 per cent, local media reported earlier in the day.

Shares in both companies fell sharply on a media report of the deal on Monday before it was officially announced. One analyst said diluting Bandhan Financial’s stake was probably the main motive and the deal lacked potential to boost shareholder value given Bandhan and Gruh’s similar portfolios.

Bandhan Bank has a market capitalisation of 598 billion rupees ($8.6 billion), while Gruh Finance is worth Rs232.24 billion.

Last year, the Reserve Bank of India (RBI) withdrew permission for Bandhan Bank to open new branches and froze its chief executive’s salary for failing to bring down Bandhan Financial Holdings’ stake to below 40 per cent.

Bandhan Bank began operations in 2015 and Indian banks are required by law to reduce a major shareholder’s stake to less than 40 per cent within three years of starting operations.

Under the deal announced on Monday, shareholders of Gruh Finance, majority owned by Housing Development Finance Corp, will receive 568 shares of Bandhan Bank for every 1,000 shares held.

Shares of Bandhan Bank closed down 5.8 per cent at 498.05 rupees on Monday, on media reports of a deal, which was announced after the market close. Gruh Finance shares ended 4.1 per cent lower at 306.35 rupees.

India’s central bank has tightened its grip on the banking sector amid fears that problems at two large non-banking financial companies could signal a wider credit crunch.

The merger would help the Kolkata-headquartered lender to achieve product and geographic diversification while improving penetration in its core customer segment.

On the other hand, the housing finance company would get access to a wider distribution network, a larger customer base and low cost deposit base of the bank.

The merger would be subject to regulatory and shareholder approvals. “This merger would bring together two companies and teams that have a common mission of serving the under banked population of the country. We are excited about this merger as it gives us the opportunity to build a unique pan-India affordable housing franchise,” the bank’s MD and CEO Chandra Shekhar Ghosh said.

Indo-Asian News Service

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