04 July, 2023

Dear stakeholders,

Brief on Scheme of Amalgamation of IDFC Ltd with IDFC FIRST Bank

The purpose of this note is to provide a brief on the scheme of Amalgamation of IDFC Limited with IDFC FIRST Bank.

The Board of Directors of IDFC FIRST Bank Limited and IDFC Limited, at their respective meetings held on July 03, 2023, have approved the Scheme of Amalgamation of IDFC limited with IDFC FIRST Bank.

The Scheme is subject to the receipt of requisite approvals from the Reserve Bank of India (“RBI”), Securities and Exchange Board of India (“SEBI”), the Competition Commission of India, the National Company Law Tribunal, BSE Limited and the National Stock Exchange of India Limited (collectively, the “Stock Exchanges”) and other statutory and regulatory authorities, and the respective shareholders, under applicable law. The following are the details of the proposed scheme:

1. The Share Exchange Ratio for the amalgamation of IDFC Limited with IDFC FIRST Bank shall be 155 equity shares of face value of ₹ 10/- each fully paid-up of IDFC FIRST Bank for every 100 equity shares of face value of ₹ 10/- each fully paid-up of IDFC Limited.
2. According to the amalgamation scheme, 264.64 crore shares of IDFC FIRST Bank held by IDFC Ltd will get extinguished, and based on the share exchange ratio mentioned above, 248 crore new shares of IDFC FIRST Bank would be issued to the shareholders of IDFC Ltd based on their respective holdings.
3. Consequent to the merger, the standalone book value per share of the Bank would increase by 4.9%, as calculated on audited financials as of March 31, 2023.
4. The key benefits of this amalgamation scheme are as follows:
   
   
   1. The merger will result in value unlocking to IDFC Limited shareholders as, after the merger, they will directly hold shares in IDFC FIRST Bank.
   2. The merger will lead to simplification of the corporate structure of IDFC FHCL, IDFC Limited and IDFC FIRST Bank by consolidating them into a single entity and will help streamline accounting and regulatory compliances of the aforesaid entities.
   3. The merger will help create an institution with diversified public and institutional shareholders, like other large successful Indian private sector banks.
   4. Raising equity capital from time to time will become easier in an institution with diversified set of shareholders.

Background:

IDFC Limited, a premier, successful infrastructure Financing Domestic Financial Institution (DFI) since 1997, was granted “in-principle” approval by the RBI to set up a Bank in April 2014, leading to the creation of IDFC Bank Limited. The Bank started its operation in October 2015. The loan assets and liabilities of IDFC Limited, which were mostly infrastructure and corporate loans, were transferred to IDFC Bank. Capital First Limited was a successful consumer and MSME financing institution since 2012 with a strong track record of growth, profits, and asset quality. On December 18, 2018, the IDFC Bank and Capital First merged, and subsequently renamed IDFC FIRST Bank. As of June 30, 2023, IDFC Limited through its non-financial holding company has 39.93% shareholding of IDFC FIRST Bank.

IDFC FIRST Bank is operating as a full-service universal bank with pan-India presence. The Bank has transformed from infrastructure financing to a universal banking franchise in the last four years. The Bank has built a strong deposit franchise, which has grown at a 4-year CAGR of 36% since the merger to reach Rs. 136,812 crore, by March 31, 2023. The Bank has increased CASA ratio from 8.6% at the time of merger with Capital First in December 2018, to 49.77% (March 31, 2023) and has set up 809 branches and 925 ATMs as of March 31, 2023.

In terms of assets, the Bank has a well-diversified loan book of Rs. 1,60,599 crore with a balance sheet size of Rs. 239,942 crore as on March 31, 2023. The Bank recorded a PAT of Rs. 2,437 crore in FY23, with strong Capital Adequacy of 16.82% as of March 31, 2023.

The Bank maintains high asset quality with Gross NPA of retail loans at 1.65% and Net NPA at 0.55% as of March 31, 2023. At the overall Bank level, GNPA 2.51% and NNPA is 0.86%. Infrastructure financing has higher NPA with GNPA of 25.11% and NNPA of 15.73%, but the infrastructure book is in wind down mode. If we exclude infrastructure financing, at the overall bank level, the GNPA is 1.84%, and NNPA is 0.46%.  The PCR, including technical write-off, is 80.29% as of March 31, 2023.

The Bank’s long term credit rating was upgraded last month by two rating agencies, CRISIL and India ratings, to AA+.

In summary, with strong foundations of good deposit franchise, customer friendly products, strong capital buffer, profitability, and high corporate governance, we look ahead, beyond the merger, to grow our bank in a safe and steady manner.

We are happy to welcome all shareholders of IDFC Limited to become direct shareholders of IDFC FIRST Bank. We will seek approval from the RBI and all other stakeholders and look forward to completing the exercise within 6 to 9 months.

Warm regards

V Vaidyanathan
MD and CEO
IDFC FIRST Bank