Please see clarification at the end of the story
Infrastructure Development Finance Company (IDFC), a non-banking finance company (NBFC), has revived its plan to enter the banking space.
Sources close to the development told Business Standard that IDFC is hunting for a mid-size private sector bank that could lend the company a banking status through a share swap deal.
A source close to the development said that IDFC, which has been trying to get a banking licence from the Reserve Bank of India (RBI) for over a year now, has appointed two investment banking firms — IDFC-SSKI and Kotak Mahindra Capital — as advisors for working out modalities on shortlisting a bank for a potential merger.
While sources at IDFC said that the company was holding initial round of talks with several privately-managed banks, another company executive said that it was too early to comment on any such possibility. The target size of the deal was estimated to be in the range of Rs 3,000-3,500 crore, the sources said.
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When contacted, an IDFC spokesperson said though they wanted to enter the banking space, they were not holding talks with any bank at present.
“IDFC will assess risk management capabilities, management, financial books, assets, size and reach of the bank it will acquire.
The deal will be worked out in such a way that IDFC could enter the banking business by taking over the licence of the bank,” an IDFC executive said.
Kotak Mahindra was the last NBFC to receive a banking licence from RBI. While NBFCs like Reliance Capital and Tata Capital too have evinced interest in seeking RBI approval for starting banking services, sources said that IDFC was leading the race to get an RBI nod.
Existing regulatory norms do not permit a corporate body to acquire a banking licence unless it hives off the funding, brokerage and exchange businesses into separate divisions.
“There are options on both assets and liabilities fronts, whereby entry into banking is also one of the areas we are exploring,” said a senior IDFC executive.
IDFC was originally set up as a financial institution to deal with the infrastructure sector, but with slow progress on lending in initial years, the government set up India Infrastructure Finance Company (IIFC) a couple of years ago to deal with the sector.
In the meantime, RBI also converted financial institutions such as IFCI and IDFC into NBFCs. During the period, ICICI, which was a term-lending institution, went for a reverse merger with ICICI Bank, while IDBI converted into a bank and merged IDBI Bank and United Western Bank with itself. A third financial institution, IIBI, was allowed to wind up.
IDFC has been aggressively gaining a foothold in the core financial services segment. Last year, the company took over assets of Standard Chartered Mutual Fund for about Rs 830 crore, outbidding UBS.
Clarification
IDFC has clarified that it is not in conversation with any bank for a possible takeover and has not appointed any merchant banker to discuss or evaluate any banks on behalf of IDFC.