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Bharat Financial to shift loans to IndusInd Bank

The allshare deal announced on October 14 is likely to be completed in 10 months.

, ET Bureau|
Updated: Oct 20, 2017, 11.40 AM IST
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IndusInd Bank said all loans of Bharat Financial will shift to itself effective the day of the merger.
IndusInd Bank said all loans of Bharat Financial will shift to itself effective the day of the merger.
MUMBAI: IndusInd Bank will replace all financiers to Bharat Financial in the next few months as it prepares the deck for integration of the micro-finance company that now has a business-correspondent relationship with the lender.

According to the first quarter presentation on the Bharat Financial website, it has taken term loans and cash credit facilities totalling Rs 5,907 crore from more than 22 banks.

Apart from bank loans and credit lines, Bharat Financial also has Rs 698 crore outstanding commercial papers and Rs 250 crore non-convertible debt by the first quarter end.



The off-balance sheet sources of financing include Rs 1,975 crore of assignment funds, managed loans, and securitisation. Together with balance sheet items, the funding totals Rs 8,829 crore by the end of first quarter of FY18.

Bank of India was the largest lender to Bharat Financial, making up 10 per cent of the borrowing, followed by Dena Bank that had given 8 per cent of loans. Among private sector lenders, Yes Bank and Kotak Mahindra Bank each made up 6 per cent of the loans.

In an email response, IndusInd Bank said all loans of Bharat Financial will shift to itself effective the day of the merger.

The allshare deal announced on October 14 is likely to be completed in 10 months and will increase IndusInd's exposure to micro finance to 7 per cent of its loan book from 2.18 per cent now.

In a post-deal note, Macquarie Securities analyst Suresh Ganapathy said micro finance loans could bring unnecessary volatility to the well-run IndusInd book.

"MFI sector is susceptible to event risks...some politician with vested interest or an event like demonetisation can cause a lot of pain," Ganapathy said.

For his part, IndusInd CEO Ro mesh Sobti said the share of micro finance in the bank's loan book will remain in single digits, likely settling around 5 per cent in the years to come.

IndusInd would also fund this portfolio through a combination of refinancing and deposits because of which there would be limited impact on the bank's statutory liquidity ratio requirements.

IndusInd will also look at funding from international multilateral agencies to minimise the cost of funds.

"The impact is miniscule compared with the benefits from 3,00,400 basis points funding cost differential, among other synergies. Interestingly, this type of portfolio attracts loans from Multilateral Institutions that carry attractive terms and rates because of their 'financial inclusion' mandate," the bank said Thursday.

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Buy Bharat Financial Inclusion, target Rs 1,085: Manav Chopra

Bharat Financial-IndusInd Bank merger to complete in 4 weeks

Bharat Financial has potential to add 20% to IndusInd bottom line: Romesh Sobti

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