Banking sector consolidation accelerates following the HDFC merger

A few days following the completion of the mega-merger between HDFC Bank and HDFC, another private lender, IDFC First Bank, announced its merger with its parent company, IDFC. While the last decade witnessed the consolidation of public banks, recent mergers indicate that the private banking sector is consolidating with increasing momentum.

On Tuesday, the board of directors of IDFC First Bank approved the merger between IDFC Limited and IDFC First Bank. The proposed merger will streamline the corporate structure by combining the two entities into a single institution.

IDFC Bank entered the banking industry in 2014 after the Reserve Bank of India (RBI) granted IDFC Limited, an infrastructure financing institution, a banking license. Capital First and IDFC Bank announced the completion of their merger in 2018 to form IDFC First Bank.

“The proposed merger of IDFC and IDFC Bank, similar to the reverse merger of HDFC Ltd. and HDFC Bank, is indicative of the consolidation occurring in the Indian banking system.” This is a positive development, according to the Chief Investment Strategist at Geojit Financial Services, V. K. Vijayakumar.

Equitas Small Finance Bank (SFB) completed its reverse merger with Equitas Holdings at the beginning of March. RBI regulations permit holding companies to lower their stakes below 40% after five years of operation.

Experts believe that mergers and acquisitions in the financial services industry will continue, as they will help firms obtain capital and expand their customer base. ” With these mergers, banks hope to leverage scale economies. A banking analyst told this newspaper that the merger provides the additional capital and geographic reach required to compete in a market that will only intensify in the coming years.

Shriram Capital, the holding company of the Shriram Group, and Shriram City Union Finance were merged with Shriram Transport Finance to form Shriram Finance last year. The recent mergers illustrate the trend of consolidation in private banks and follow the mergers of public banks in the preceding decade. In an effort to create large, well-capitalized banks, the government announced in 2019 that ten public banks would be merged into four.

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