IDFC First Bank Slips, IDFC Surges To Record High On Long-Awaited Merger Approval

India's banking sector has witnessed a significant development as IDFC First Bank, a prominent player in the industry, recently faced a dip while IDFC, its parent company, experienced a surge in its stock prices following the approval of their long-awaited merger, Reuters Reported.

IDFC First Bank (IDFB.NS) witnessed a decline of up to 6% in its share prices on Tuesday, while IDFC experienced a remarkable 6% surge to reach record highs. The reason behind these market movements was the approval of a reverse merger between the two companies, aimed at simplifying their corporate structure and streamlining regulatory compliance.

In this deal, which follows in the footsteps of a similar merger between HDFC Ltd and HDFC Bank, non-banking lender IDFC's shareholders will be entitled to receive 155 shares of IDFC First Bank for every 100 shares they currently hold in the former.

This strategic move seeks to enhance operational efficiency and unlock synergies between the entities, potentially positioning the combined company for greater growth in the competitive banking sector.

The approval of the merger values IDFC First Bank at 127.02 rupees per share, representing a 16.3% premium over IDFC's most recent closing price. As of June 30, IDFC held a 39.93% stake in the banking arm through IDFC Financial Holdings. The Reserve Bank of India granted IDFC the permission to exit IDFC First Bank, as the five-year share lock-in period concluded in 2020, thus paving the way for the reverse merger.

IDFC First Bank was established in 2014 under the name IDFC Bank. However, it underwent a transformation in 2018 through a merger between the lender and Capital First, resulting in the formation of IDFC First Bank.

"This was a long pending merger which was stuck due to the complex legal structure of IDFC and hence, took time to unwind," said Asutosh Mishra, analyst at domestic brokerage house Ashika Stock Broking.
IDFC First Bank has announced that its standalone book value will witness a significant increase of 4.9% following the approval of the merger deal, as stated by the lender.

As of March 31, IDFC First Bank boasted a loan book worth 1.61 trillion rupees and a balance sheet size of 2.4 trillion rupees.

Kranthi Bathini, an equity strategist at WealthMills Securities, suggested that the HDFC-HDFC Bank merger, which resulted in the formation of a financial giant worth $40 billion, might have played a pivotal role in expediting the approval process.