Private lender IndusInd Bank has initiated talks to explore merger options with Bharat Financial Inclusion Ltd (BFIL) -- the country's second-largest microfinance company -- a move that would help increase the bank's size and reach.
The announcement comes two months after another private lender IDFC Bank and Shriram Capital agreeing to examine the merger possibility with a view to creating one of the country's largest retail banks, which could be valued at over Rs 65,000 crore.
BFIL, formerly SKS Microfinance, had a customer base of 68 lakh and loan portfolio of Rs 7,709 crore as of June 30.
However, the microfinance company suffered a loss of Rs 37 crore for the quarter to June as against Rs 236 crore in the same period a year ago. For 2016-17, the company had recorded a profit of Rs 290 crore.
If the deal goes through, the merger will take place with a share swap as both are listed.
"The company has entered into an exclusivity agreement with IndusInd Bank for agreeing to have an exclusive discussion with IndusInd Bank about the proposed potential strategic combination by way of amalgamation through a scheme of arrangement, or any other suitable structure," BFIL said in a regulatory filing.
"The exclusivity agreement provides for a mutually agreed exclusivity period for due diligence and discussions to evaluate a potential strategic combination between the company and BFIL," IndusInd Bank said.
Both, however, did not elaborate on the duration of the exclusivity period.
If the merger fructifies, it will be the third major deal for IndusInd Bank after acquisition of Deutsche Bank's credit card portfolio in 2011 and RBS diamond financing book in 2015.
Other banks, including IDFC Bank, Kotak and RBL, have either acquired or taken minority stakes in MFIs in the past 18 months.
In March this year, IndusInd Bank said it was in talks with multiple entities for business expansion, including the widely-speculated merger of Bharat Financial Inclusion.
In the statement issued to bourses following media reports that IndusInd and BFIL are likely to announce a merger in an all-stock deal, the bank said the management has been authorised to evaluate strategic opportunities for business expansion.
There have been a slew of deals between private lenders and MFIs as the former seek to expand their network in the hinterland that will help them meet the priority sector lending mandates and offer cross-sell opportunities.
BFIL already has a business correspondent relationship with IndusInd in Karnataka for many years now. The then SKS had a tumultuous time four years ago as it first faced a repayment crisis in its largest market of Andhra Pradesh and a corporate battle over leadership that ended with the exit of founder Vikram Akula.
Stock of IndusInd Bank closed 5.56 per cent higher at Rs 1,790.65 while that of Bharat Financial Inclusion ended at Rs 967.25, up 3.34 per cent, on the BSE.
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