In its annual report for the year through March 2016, IDFC Bank says it wants to become a mass retail bank within five years. Its proposed merger with non-banking financial company Shriram City Union Finance Ltd will help it do just that.
IDFC Bank is the youngest private-sector bank in India and started operations in October 2015. It struck its first acquisition last year, taking over Tamil Nadu-based Grama Vidiyal Microfinance. The deal brought Grama Vidiyal’s 9.6 lakh customers into IDFC Bank’s fold. The bank had around 13.8 lakh customers as of 31 March.
The Shriram deal, if it goes through, will help IDFC Bank expand its customer base by three-and-a-half times. It will also increase the combined entity’s asset base to nearly Rs 1.38 trillion, making it the seventh-largest bank in the private sector from ninth currently.
There are other benefits, too. IDFC Bank has a large corporate portfolio while loans to small enterprises make up 55% of Shriram City Union’s assets under management, making the deal complementary.
The proposed transaction will also provide IDFC Bank access to the strong network of Shriram Transport Finance Company, one of the largest vehicle financing NBFCs in the country with assets under management of Rs 79,000 crore. Shriram Transport has a customer base of 14.5 lakh, an added incentive for IDFC Bank for distribution of its products.
More than IDFC Bank, however, the deal will help fulfill the ambitions of Ajay Piramal. The billionaire chairman of Piramal Enterprises Ltd and Shriram Capital had been trying to enter the banking sector for quite some time but didn’t get a bank licence from the Reserve Bank of India. He is now on the cusp of achieving its goal.