LeaderBoard
urge to mergeWhat the Merger Plan Means
for IDFC, Shriram Shareholders
days before the
Shriram Group and IDFC
Ltd announced their
merger proposal, the stock
markets were abuzz with
the possibility. On July 8,
Ajay Piramal, chairman of
Piramal Group and Shriram
Group, said the merger
aimed to create a financial
conglomerate with a
universal bank at its centre.
IDFC Ltd is the holding
company of IDFC Bank.
Under the proposed deal,
the retail lender Shriram
City Union Finance will be
absorbed by IDFC Bank,
while the commercial
vehicles financier Shriram
Transport Finance
Company will be delisted
and made a separate non-
banking financial company.
The parent IDFC will also
possibly own a 75 percent
stake in the general and
life insurance businesses of
the Shriram Group, which
are subsidiaries of Shriram
Capital, the group’s unlisted
holding company.
However, the future
roles of the leaders of
these organisations remain
unclear.
It would be interesting
to see what Ajay Piramal
does post-merger. His listed
firm Piramal Enterprises
Limited (PEL) bought
stakes in Shriram Group
firms between 2013 andWhile the Shriram brand may stay, the group could lose its identity as an enterprise
stable,” he says. Although
Piramal and Lall say
Shriram will continue to
exist as a brand, effectively
the Shriram Group, except
Shriram Transport Finance,
will lose its identity as
an enterprise.
The merged bank will
have around `1.1 lakh crore
of advances (the seventh
largest in the private sector)
and around 1,070 branches
(the sixth largest in the
private sector), according
to an Axis Capital report.
Analysts Praveen Agarwal
and Vikash Mundhra
of Axis Capital say the
merger is a “negative” for
shareholders of Shriram
City Union Finance and
Shriram Transport Finance,
but a positive for IDFC
Bank shareholders.
The biggest challenge,
though, are approvals from
the RBI, Irdai and Sebi.
The RBI does not permit
two lending institutions
under one holding
company. Piramal and Lall
are hopeful, considering
that Shriram Transport
Finance’s business aids
financial inclusion, and
a recent circular permits
certain entities to hold
a single line of business
outside the bank, provided
the bank is not undertaking
that line of business.
—salil panchal14 | forbes india august 4, 2017(L to R): IDFC Bank MD and CEO Rajiv Lall, Ajay Piramal and Shriram
Group founder R Thyagarajan announcing the merger plan“IDFC was a
small stable with
modest ponies...
we are adding
serious horses.”2014 with the intent of
merging them with PEL’s
growing financial services
business. He later said he
does not want to dilute the
value of the two brands.
“Obviously there will
be some change, let us see
how it evolves. Today I
am also the chairman of
Shriram Group, but it is
the professionals who are
running it. There will be
another set of professionals
[in the merged entity].
Whatever is in the bestinterest of shareholders and
within RBI guidelines, is
what we will do,” he says.
PEL holds a 20 percent
stake in Shriram Capital,
9.96 percent in Shriram
Transport Finance and
9.98 percent in Shriram
City Union Finance; PEL’s
stake in the merged entity
is expected to fall. Piramal
rejects any possibility of
making an exit at this stage.
Rajiv Lall, founder MD
and CEO of IDFC Bank,
believes the merger will
help the bank save “at
least four to five years”
compared to expanding its
retail presence and liability
on its own. “IDFC was a
small stable with modest-
sized ponies... what we
are doing is adding some
serious horses to that