Bandhan CEO in Confidence-building Meets with Gruh Staff and Foreign Investors
Two weeks after announcing the merger of Bandhan Bank with Gruh Finance, in which Housing Development and Finance Corporation has a 57.83% stake, Bandhan Bank CEO Chandrashekar Ghosh spent a day and a half in Ahmedabad last week, at the headquarters of Gruh Finance, meeting the top management. Today, he is in Singapore meeting institutional shareholders, explaining how the merged entity will be able to create value.
 
Mr Ghosh flew down to Ahmedabad for the Vibrant Gujarat Summit last weekend but spent most of his time in meeting the senior people at Gruh. He assured them that there would be no interference from Bandhan and, in fact, Bandhan will use Gruh as a special business unit keeping its character and operations intact. 
 
He said he was looking forward to leveraging Gruh’s home loans expertise through its branches in the east and eventually in all the 1,000 branches across India. It may be recalled that on 7th January, the boards of Gruh, HDFC and Bandhan announced that HDFC has decided to sell its 57.83% stake in Gruh to Bandhan in a share swap deal. 
 
One of the reasons behind the deal was that the long-term viability of finance companies is in doubt, unless they were backed by banks. “During the October-November liquidity crisis, even Gruh had a problem. Lenders were asking for ridiculous rates for short term lending and because HDFC was the parent company, Gruh could get cheaper money,” says a senior HDFC official. “If Gruh does not have the HDFC tag, then the cost of money would be much higher.”
 
Following the merger, the shares of both Bandhan and Gruh fell after several institutional investors sold because they believed that had invested in a high quality mortgage lender (Gruh) and did not want to be saddled with the shares of a bank, especially a bank that is involved mainly in microfinance. Of course, it is also a fact that Gruh was also one of the most richly-valued finance companies in the world; the pre-merger price was expensive.
 
An HDFC board member said that when Bandhan proposed a merger with Gruh, the board thought that it was a good fit. “We have many foreign institutional investors who are fine with the merger. They feel that the banking structure is better in the long run for Gruh. International Finance Corporation and GIC (Singapore’s sovereign wealth fund) have large stakes in Gruh. The IFC CEO said we would like to do more with Bandhan. GIC has approached RBI to increase its stake to 10%. There is a lot of interest from multilateral agencies because of the microfinance business in Bandhan. Cost of funds for Gruh unit will be lower in Bandhan.”
 
HDFC will end up holding 15.44% of Bandhan, post-merger. If the RBI does not allow HDFC the permission to hold that stake, “they will surely give us permission to hold 9.9% and we will have to place 5.44%,” says a source in HDFC. Gruh shareholders have also been asking why not merge with HDFC. The merger will hardly move the needle for us, said the HDFC board member quoted earlier. "To acquire a book of Rs20,000 crore is small for us, for which we would have to go through a difficult and time-consuming merger process.” Finally, some retail shareholders have asked why not offer some cash along with the shares? Well, Bandhan does not have cash to spare. In fact, HDFC had initially proposed that Bandhan pays HDFC in cash for the  5.44% stake so that it could go to RBI with an approval for the 9.9% holding. But this was a no-go for Bandhan. 
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COMMENTS

Sunil Sutradhar

4 weeks ago

Hello

Ramesh Poapt

4 weeks ago

Good brief!

R Balakrishnan

4 weeks ago

The small investor - Just watch the story unfold. The story will be told to you only if you have a large enough stake that warrants promoter attention. Way of the world. One who has the money, writes the rules

REPLY

Amarnath Joshi

In Reply to R Balakrishnan 4 weeks ago

Good quote, one who has money , writes the rule. Moneylife has come covered good analysis in its news letter .. please continue to provide unbiased information, thanks

Rajesh Karthikeyan

In Reply to R Balakrishnan 4 weeks ago

Last line so powerful

RBI Governor to meet associations of industry, commerce
Continuing his series of consultations with various stakeholders of the economy, Reserve Bank of India Governor Shaktikanta Das on Wednesday said he would meet the representatives from the industry and commerce on Thursday.
 
"Will meet the apex chambers/associations of industry and commerce tomorrow (17th January)," Das said in a tweet. This is his fifth tweet since he assumed charge as Reserve Bank of India (RBI) Governor on December 11 last year.
 
The meeting becomes significant as the industry expects monetary policy easing by the central bank as the inflation is down and within control. The RBI will have its sixth bimonthly monetary policy meeting on February 7 and the industry is expecting a cut in policy rates. 
 
Das, who replaced Urjit Patel after he suddenly resigned on December 10 following a tussle with the Central government over liquidity concerns, has been holding meetings with various groups to review the situation, unlike his predecessor.
 
Since joining office, Das has already held meetings with public and private sector banks, cooperative banks, MSME (micro, small and medium enterprises) associations and representatives of non-banking financial companies (NBFCs).
 
He had recently said the central bank will continuously monitor the liquidity situation and will take need-based steps to deal with the liquidity deficit. Liquidity became a concern after infrastructure financing company IL&FS defaulted on its dues.
 
While liquidity crunch hit the NBFC sector last September after payment defaults by IL&FS and its subsidiaries, small and medium industries were yet to recover from the fallout of 2016 demonetisation of high denomination currency notes and the GST rollout in July 2017.
 
A day after joining RBI, on December 12, Das had said that the health of public sector banks, liquidity issue and maintenance of growth trajectory of Indian economy are some of the important issues for which he would interact with stakeholders and get an internal feedback before forming a view.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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COMMENTS

Aditya G

1 month ago

What about the consumers? I guess they don't care.

Delhi HC Issues Notice to Govt, RBI on Bank Merger Plan
The Delhi High Court today issued notice to the government of India in a petition filed jointly by the All India Bank Officers’ Confederation (AIBOC), and the All India Vijaya Bank Officers’ Association, against the proposed amalgamation of Vijaya Bank and Dena Bank with the Bank of Baroda, and against the scheme of amalgamation published on 2 January 2019 under Section 9(6) of the of the Banking Companies (Acquisition and Transfer of Undertakings) Act(s), 1970/80.   The merger, aiming at consolidating and integrating smaller banks with bigger banks, was to have been operational on from 1 April 2019. 
 
A bench led by Justice S Raveendra Bhat issued the notice to the finance ministry, RBI, Bank of Baroda, Dena Bank and Vijaya Bank. 
 
The petitioners have challenged the decision making process involved in going ahead with the merger, contending that the decision making process is vitiated on several grounds. 
 
The petition points out that even though the three banks are publicly listed companies, their boards have acted under the diktat of the government as the concurrence of the respective boards appears to have been manufactured and taken under compulsion. The government, says the petition, has not acted like a model promoter and has instead presented a fait accompli to the bank boards.
 
The petition further states that there was no prior consultation with RBI, which is mandated by the Banking Regulation Act and the Bank Nationalisation Act. 
 
The merger plan has also been challenged on the ground that officer and workmen directors were missing from the three boards that took the decision. These posts are mandated under the Bank Nationalisation Act, which the government has not filled up for over three years, despite orders from Delhi HC in another related petition filed by AIBOC. 
 
The petition also questions the merit of the decision, particularly that of Vijaya Bank, which is presently a profitable bank with a positive Return on Assets (RoA) and its amalgamation with a negative RoA bank to form a bigger entity would adversely affect the interests and fundamental rights of a large number of persons, including members of the organisations.
 
The court reiterated its earlier direction to place on record all relevant files/ records and minutes of meetings and listed the matter for final hearing on 13 February, 2019.
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COMMENTS

P M Ravindran

1 month ago

There have been many mergers before but no such issues had come up then. How is this merger different? Will the court specifically demand data to support the grievances of the petitioners? Will the respondents counter such data with the data available from earlier mergers? Only time will tell.

Dr.Dhananjaya Bhupathi

1 month ago

1. What were the petitioners doing, when the bill has been passed in Parliament?
2. It is not clear, if Delhi HC issued notices to the respondents, based on writ filed?
3. AIBOC with huge members’ fund, enlightened large- membership & information @ their disposal, why the new leadership failed in informing members, general public on disadvantages of proposed mergers. Simply going on strike much to the inconvenience of customers was not a wise step. WHY THE UFBU AFFILIATES FAILED TO LEAD A PARLIAMENTRY DELEGATION, WHEN PARLIAMENT IS IN SESSION?
4. What is the role of UFBU/AIBEA? The sole culprit is ‘COMMUNICATION GAP’ BETWEEN AIBOC, UFBU, AIBEA, AIBRF & CBPRO, etc.
5. It is not too late if the nominated leadership puts its brains together & arrives @ a common approach. Lest, this nominated leadership resign & make a way for an elected body to take over issues for logical conclusions. Why CHV, retired a decade ago, is leading AIBEA? Why can’t AIBEA members pressurize for elections? What the mentor CPI is doing? Unless the CPI updates its leadership & policies, it is bound to go into further oblivion.
6. SATYAMAEVA JAYATHE!!!

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