Background about the restructuring
IDFC was granted in-principle approval by RBI to set up a bank in April 2014, leading to the creation of IDFC Bank Limited and IDFC Financial Holding Company Limited (IDFC FHCL).
IDFC FHCL is the non operative holding company and in compliance with the RBI regulations, was mandated to hold the ownership of all the regulated businesses (including IDFC Bank).
IDFC Bank in December 2018 merged with the Capital First Ltd and was subsequently renamed IDFC FIRST Bank (IDFC First).
As a promoter, IDFC was required to hold a minimum of 40% equity in the Bank for five years (till September 30, 2020).
In December 2021, a in-principle approval was granted to merge IDFC and IDFC FHCL with IDFC First.
Subsequent to this, in April 2022 the AMC business of IDFC was sold to the Bandhan group.
Currently, IDFC and IDFC HFCL have minimal operations and majority of their value comes through 40% stake in IDFC First. IDFC owns 100% of IDFC FHCL, which in turn owns 40% stake in IDFC First.
What is being done now?
In compliance with the in-principle approval of December 2021 – merger of IDFC and IDFC FHCL into IDFC First.
- First, IDFC FHCL will be merged into IDFC
- Then, IDFC will be merged into IDFC First
- Share swap ratio between IDFC and IDFC First has been fixed at 100:155 i.e., 155 shares of IDFC first for every 100 shares of IDFC
The current announcements are part of the ongoing restructuring exercise and per se don’t offer any surprise element.
What is however comforting is the conclusion of the exercise.