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Synopsis: The merger between IDFC First Bank and IDFC Ltd is expected to increase IDFC First Bank's weight in the Nifty Bank index, attracting $39 million in passive inflows. Other major banks like HDFC Bank and ICICI Bank will see minor outflows due to the adjustments. The merger, effective from October 1, 2024, simplifies IDFC First Bank’s corporate structure and enhances its financial flexibility. The share exchange ratio has been set at 155 IDFC First Bank shares for every 100 IDFC Ltd shares.
Overview of the Merger: The merger between IDFC First Bank and IDFC Ltd is set to impact the Nifty Bank index, with notable changes in the stock weights of several banks. The merger was officially completed on October 1, 2024, following approvals from the National Company Law Tribunal (NCLT), with a record date of October 10, 2024, for share exchanges. IDFC First Bank shareholders will receive 155 equity shares for every 100 shares of IDFC Ltd. This merger simplifies the corporate structure, removes the holding company, and provides cash flows of approximately ?600 crore to the bank.
Impact on Passive Inflows: Due to the merger, IDFC First Bank is projected to attract around $39 million in passive inflows. Meanwhile, other major banks, including HDFC Bank, ICICI Bank, and SBI, are expected to experience slight passive outflows. Specifically, HDFC Bank is expected to see $11 million in outflows, ICICI Bank $10 million, SBI $4 million, and Kotak Mahindra Bank $4 million. Smaller outflows of $1-2 million are also expected for banks like IndusInd Bank, Bank of Baroda, and Federal Bank.
Changes to Nifty Bank Index Weight: As a result of the merger, IDFC First Bank's weight in the Nifty Bank index is expected to increase. Other constituents of the index will likely see marginal decreases in their respective weights. These adjustments will take place during the final 30 minutes of trading on the National Stock Exchange (NSE), according to Nuvama Institutional Equities.
Purpose of the Merger: The merger simplifies IDFC First Bank's corporate structure by eliminating promoter holdings, thus creating a professional and streamlined entity. This also sets up the bank to potentially pay dividends in the future, as accumulated losses will be offset by the bank’s securities premium account.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investors should consult their financial advisors before making any investment decisions.
