The Hindujas will pump another Rs 2,700 crore into IndusInd Bank through a warrant issue to ramp up the promoter holding after the merger of Bharat Financial, a senior official from the private sector lender has said.

The merger between the bank and the micro-lender, which will be effective July 4, is accretive from a profit, margin and return on equity perspective.

“Our promoters will infuse Rs 2,700 crore to get their stake back to 15 per cent,” strategy head at the bank Sanjay Mallik told PTI over phone. He said a fourth of the money will come immediately after the merger, while the rest will come over the next 18 months.

Fund infusion

The promoters will be subscribing to the warrants  at a premium of Rs 1,709 a share as against the Friday's close of Rs 1,448.70 on the BSE, Mallik said. He explained that dilution of their stake to about the 13 per cent levels due to the merger with the micro-lender is making it possible for the promoters to subscribe to the warrants and increase their holding to 15 per cent which is the cap set by regulator.

Merger of Bharat Financial into IndusInd Bank was announced in October 2017, as part of which a shareholder would get 639 shares of IndusInd Bank for every 1,000 shares of the micro-lender.

“Apart from the promoters’ infusion, the banks capital base will also benefit through the Rs 4,200-crore networth of the merged entity,” Mallik said.

The merger and subsequent promoter infusion will push the capital base by USD 1 billion, he said, adding the capital buffers will increase by 3 percentage points through this. “The fund infusion will expand the net interest margin by over 0.30 per cent, and also help from a return on assets and return on equity perspectives,” he said.

The margin of the micro-lender is at least three times of the bank. Considering that Bharat Financial will constitute 7 per cent of the bank balance sheet post-merger, our margins will go up by 0.30-0.40 per cent, Mallik said.

The benefits

Mallik said the merger will help the micro-lender save up to 3 percentage points on its cost of funds because of the access to cheaper deposits after the merger.

He said nearly all of the 20 financial institutions from where Bharat Financial had borrowed money as part of its independent operations have been paid their dues. He, however, was quick to add that this is simple math and should not be seen as a guidance.

The bank had reported at 3.9 per cent net interest margin for the March quarter. The bank will announce the consolidated numbers for the June quarter on July 12. He said similarly, the return on assets will also benefit, pointing out that the ratio stands at 1.9 per cent for the bank, whereas the same for Bharat Financial is at 4.5 per cent with 27 per cent return on equity, which is much higher than the banks 17.5 per cent.

“Bharat Financial will be a hundred per cent subsidiary of the bank and will be the banks business correspondent, which will continue with its earlier activities, employees and relationships,” he said.

Additionally, the merger will help the bank extend all the universal banking services to the largely rural clientèle of the micro-financier to fulfil their aspirations. Mallik said least amount of integration efforts are required for the merger, because the two businesses are complementary and distinct from each other and added that a lot of practices of IndusInd are already known to Bharat Financial because the micro-lender has been functioning as a business correspondent for the bank for long.