Consumer Finance,Markets Exchanges,Mergers and Acquisitions,riskregulation,Transaction Banking,

Consumer Finance,Markets Exchanges,Mergers and Acquisitions,riskregulation,Transaction Banking,

IDFC and the Shriram Group have agreed to finalise within 90 days the merger of financial services business of the two groups that will create a financial supermarket with offerings from motorcycle credit to lending for multi-billion dollar power projects.

IDFC Bank managing director and chief executive Rajiv Lall called the proposed merger a 'marriage made in heaven' while the founder chairman Deepak Parekh said that IDFC gets 'readymade branches’ and `hope the marriage happens’ amid likely regulatory obstacles.

All the operating businesses of the two groups will come together under IDFC Ltd. The retail consumer centric business of the holding company Shriram Capital - Shriram City UnionBSE -1.29 % Finance - will be merged into IDFC Bank. The transport finance business will remain a standalone non-banking finance company that would become a subsidiary of IDFC Limited. The share swap ratio and other details of the merger would be worked out in the next 90 days.

"In the long run, if ever there is a black swan event, you do need a fall back and that's where a bank will help" said Ajay Piramal, the single largest individual shareholder in Shriram Group of companies.

The merger of the two group of companies will create a financial giant with a market value of at least Rs. 72,000 crores which will also have businesses like mutual funds and life insurance.

"It is a chance to create financial conglomerate that could become India's largest mass retail platform, to deliver full range of financial products,” said Piramal.

The merger of the two group businesses may be the first of its kind in India with different businesses located in different companies. These companies straddle various regulators, from the Reserve Bank of India to the Insurance Regulatory Development Authority of India to the Securities & Exchange Board of India.

An approval from the RBI may be the trickiest one with the central bank having expressed reservations in the past about the holding structure when it comes to banks. It had insisted all the lending businesses be brought under the bank umbrella for a universal bank license. It was averse to a bank owning lending operations in any other entity other than the bank itself.

"This is a complex transaction.... will take time to execute,'' said Lall.

The transaction, if it happens, would be a dream come true for both the groups. Shriram group wanted to own a bank but was not willing to toe the conditions for a universal bank license. For IDFC Bank which has been struggling to build a reasonable retail assets or liabilities franchise despite getting a universal bank license three years ago, would get millions of customers on a platter.

"Shriram needs wholesale assets and IDFC needs retail assets," said Parekh. "There’s a lot of work ahead."

Re-disseminated by The Asian Banker from The Economic Times