Outlook Business
Strange Bedfellows Image Credit: Outlook Business
Strange Bedfellows Image Credit: Outlook Business

Strange Bedfellows

The IDFC-Shriram deal is unlikely to create value for its stakeholders.

Khushboo Balani

On July 8, IDFC Bank and the Shriram group announced that they have entered into an exclusive arrangement for 90 days to explore the possibility of a merger. As per the proposed arrangement, Shriram City Union Finance (SCUF) will be merged with IDFC bank, while Shriram Transport Finance Company (STFC) will become a subsidiary of IDFC and will be subsequently delisted. The other businesses (life and general insurance, AMC, stock broking) will also become subsidiaries of IDFC.

The proposed deal got a thumbs-down from the market with STFC and SCUF declining 7.57% and 8.48% and IDFC Bank losing 4.87% (as on July 2017), since the deal was announced.

The merger will give IDFC Bank, which has been struggling to grow its retail business given its limited branch network, access to more than 10 million customers of both the Shriram group companies. If the merger goes through, the bank, which currently has 90 branches, will also have access to nearly 1,000 branches that SCUF has across the country, apart from ensuring that the bank meets its priority sector lending (PSL) requirement since more than half of SCUF’s loan portfolio is PSL complaint. For Shriram group of companies, the merger will lead to lower cost of funds and the ability to cross-sell multiple banking and investment products. But the good news en

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