Bandhan Bank in advanced talks for Gruh Finance merger

Mumbai / Kolkata: Bandhan Banks’s talks with HDFC to either buy into or merge with Gruh Finance, a mortgage-lender for the less affluent, have reached an advanced stage, although the regulatory response to the proposal would decide the fate of the transaction, two people familiar with the matter told ET.

“The talks regarding the deal between Bandhan Bank and Gruh Finance have reached an advanced stage,” said a source close to the development. “However, there is no clarity on whether the deal will get regulatory and stakeholders’ approvals, and within what timeframe.”

The deal, if it were to secure regulatory approvals, could be announced soon.


Bandhan Bank, which started operations in 2015, is exploring the M&A route to meet the regulatory guidelines on trimming promoter shareholding. The proposed transaction would help Bandhan reduce its promoter holding in the lender from the existing 82.28%. The promoters need to bring down their stake to 40%.

HDFC, India’s mortgage-lending pioneer, owns 21% in HDFC Bank and 2% of RBL Bank. The regulator may demand a plan of action to ascertain what HDFC intends to do with its high stake in Bandhan Bank. If the merger happens at the current market cap, HDFC would own around 15% in Bandhan Bank.

“The deal will require exemption from the Reserve Bank of India for HDFC to own more than 5% stake in Bandhan Bank and the regulator will insist on a plan of action defining the timeline for a reduction of its stake in the merged entity,” said another source aware of the development.

The central bank had imposed curbs on Bandhan Bank for its failure to adhere to the deadline to lower the promoter holding, making it mandatory to seek the regulator’s approval before it opened new branches. The curbs included a freeze on the chief executive’s remuneration.

HDFC, India’s mortgage-lending pioneer, had in the past said that as a business strategy, Gruh Finance explores various business opportunities for the sale of its loan assets and other feasible modes of organic and inorganic growth.

Executives at both HDFC and Bandhan Bank did not reply to text messages late Sunday evening.

Gruh Finance has a market capitalisation of Rs 23,337 crore while Bandhan Bank is valued at Rs 63,000 crore, as per Friday’s closing.

HDFC’s holding in Gruh currently stands at 57.9%. Gruh is a housing finance company in the affordable housing segment, with a retail network of 194 offices spread across 11 states. As of March 31, 2018, the loan book stood at Rs 15,568 crore compared with Rs 13,244 crore in the previous year — an increase of 18%. Gross nonperforming loans stood at 0.45% of the total loans outstanding.

The average size of loans disbursed during the year was Rs 9.4 lakh. For the year ended March 31, 2018, Gruh reported a profit after tax of Rs 363 crore.