RBI Approves Reverse Merger of IDFC Ltd and IDFC First Bank: What Investors Need to Know”

The Reserve Bank of India (RBI) has approved the reverse merger of IDFC Ltd with its banking arm, IDFC First Bank, marking a significant development in the Indian banking sector.

In a regulatory filing, IDFC Ltd confirmed the RBI’s consent for the proposed composite scheme of amalgamation, subject to compliance with specified terms. This decision follows board approvals by both IDFC First Bank and IDFC in July 2023 regarding the reverse merger.

The amalgamation plan involves IDFC Financial Holding Company Limited (IDFC FHCL) merging with IDFC and transforming IDFC into IDFC First Bank Ltd.

However, completing this merger is contingent upon receiving additional statutory and regulatory approvals, including those from the National Company Law Tribunal and the respective shareholders and creditors of the involved entities, following applicable laws.

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Under this reverse merger plan, an IDFC shareholder will receive 155 shares for every 100 shares held in the bank, each with a face value of Rs 10.

The amalgamation is expected to augment the standalone book value per share of IDFC First Bank by 4.9 percent based on audited financials as of March 2023. As of June 2023, IDFC held a 39.93% stake in IDFC First Bank through its non-financial holding company.

IDFC, established as a private sector infrastructure lender in 1997, ventured into the banking arena in 2015 with IDFC Bank. The proposed merger will consolidate its position further.

Post-merger, like HDFC Bank, the combined entity, IDFC First Bank, will not have a promoter firm, maintaining complete control through institutional and public shareholders.

The genesis of IDFC’s banking journey began when the RBI granted in-principle approval to establish a bank in April 2014. Subsequently, IDFC Bank commenced operations in October 2015, absorbing IDFC’s debts and liabilities.

In a strategic move, IDFC acquired Capital First in December 2018, rebranding it as IDFC First Bank, pivoting toward a full-service universal bank catering to consumers and MSMEs.

This reverse merger signifies a significant transformation in the Indian banking landscape, consolidating entities to create a robust and more extensive banking network.