IndusInd may snap up Bharat Financial in a Rs11,300-cr all-stock deal

Hinduja Group financial enterprise IndusInd Bank Ltd is likely to acquire micro-finance company Bharat Financial Inclusion Ltd (formerly SKS Microfinance) in an all-stock deal worth Rs11,300 crore ($1.7 billion), people with knowledge of the matter said.

The Mumbai-based IndusInd is in advanced talks to acquire Bharat Financial and a deal is likely to be announced in the next month, sources added.

The acquisition is expected to be at a price above 10 per cent of the current market price of the stock, reports quoting sources said. With shares of Bharat Financial ring 0.6 per cent to Rs844.45 at 10:02 am in Mumbai today the market value of the company stood at Rs11,300 crore ( $1.7 billion).

"The management has been exploring strategic alternatives, and engaging in discussions from time to time with various parties, including Bharat Financial, as and when required," the bank said in a late evening exchange filing.

While refusing to directly acknowledge media reports, IndusInd Bank said the bank has authorised its management to evaluate strategic opportunities for business expansion, adding that no decision has yet been made in this regard by either the board or any of the committees. It also termed the media reports as "speculative".

IndusInd is in the process of expanding its rural base and, in order to target banking clients in rural areas it needs support of micro-finance institutions, according to an investor presentation on its website.

The bank, led by chief executive officer Romesh Sobti, is considering acquisitions of specialist businesses with proven management and under-penetrated customer bases, the presentation shows.

There is no certainty that the talks will result in a deal, the people said. A representative for IndusInd didn't immediately respond to an emailed request for comment, while a representative for Bharat Financial said the firm doesn't comment on market speculation.

Hyderabad-based Bharat Financial, which started operating in 1998 when it was called SKS Microfinance Ltd, was modeled after Nobel Laureate Muhammad Yunus's Grameen Bank in Bangladesh.

The lender, with an average loan outstanding of Rs16,612 per borrower, focuses on rural customers, according to an October investor presentation.

The Mumbai-based IndusInd, which has around 9 million customers, offers commercial, transactional and electronic banking products and services.

As on 30 June 2016, IndusInd Bank had 1,004 branches, and 1885 ATMs spread across 625 locations of the country. It also has representative offices in London, Dubai and Abu Dhabi.

India's demonetisation policy helped IndusInd Bank post a surprise record quarterly profit as surging deposits following the cash ban eased the lender's funding costs and allowed it to extend more loans.

It saw its deposits surge 38 per cent in the December quarter, easing its cost of funding and boosting its net interest income by 35 per cent. Lending rose by 25 per cent as the bank boosted commercial and utility vehicle loans, which account for about a fifth of advances.