Bandhan Bank will buy mortgage provider Gruh Finance in a share-swap deal to build up its housing loan portfolio, the companies said on Monday. The deal will also help Bandhan Bank's main shareholder, Bandhan Financial Holdings, reduce its stake in the lender to just above 60 per cent, local media reported earlier in the day. Shares in both companies fell sharply on a media report of the deal on Monday before it was officially announced. One analyst said diluting Bandhan Financial's stake was probably the main motive and the deal lacked potential to boost shareholder value given Bandhan and Gruh's similar portfolios.
Bhandhan Bank has a market capitalisation of Rs 59,800 crore ($8.6 billion), while Gruh Finance is worth Rs 23,224 crore.
Last year, the Reserve Bank of India (RBI) withdrew permission for Bandhan Bank to open new branches and froze its chief executive's salary for failing to bring down Bandhan Financial Holdings' stake to below 40 per cent.
Bhandhan Bank began operations in 2015 and banks in the country are required by law to reduce a major shareholder's stake to less than 40 per cent within three years of starting operations.
Under the deal announced on Monday, shareholders of Gruh Finance, majority owned by Housing Development Finance Corp, will receive 568 shares of Bandhan Bank for every 1,000 shares held.
Shares of Bandhan Bank closed down 5.8 per cent at Rs 498.05 on Monday, on media reports of a deal, which was announced after the market close. Gruh Finance shares ended 4.1 per cent lower at Rs 306.35.
The central bank has tightened its grip on the banking sector amid fears that problems at two large non-banking financial companies could signal a wider credit crunch.
($1 = Rs 69.6150)
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