Bandhan Bank and GRUH Finance are merging.

GRUH Finance is the housing finance subsidiary of HDFC. Bandhan Bank is India’s youngest bank which was listed on the stock exchange in 2018. 

Subject to regulatory approvals, the merger shall take effect from January 1, 2019. The share exchange ratio is decided at 568:1000, which means shareholders of GRUH Finance will receive 568 shares of Bandhan Bank for every 1000 shares that they hold of GRUH Finance.

Bandhan Bank share price

Bandhan Bank share price: ₹480 (8th Jan 2018)

The share price of the bank fell by around 3.7% to close at ₹480 after the announcement of the merger.

Why is Bandhan Bank share price falling?

Many investors believe the merger does not solve the problem Bandhan Bank is looking to solve by this acquisition. The promoters of a bank cannot own more than 15% of the bank. This is explained in detail further in this article.

GRUH Finance share price

GRUH Finance share price: ₹256 (8th Jan 2018)

The share price of GRUH fell by nearly 17% after the announcement of the merger.

Why is GRUH Finance share price falling?

GRUH Finance shares are falling dramatically because many believe that this company has built a good niche and that it does not benefit from the merger. Again, more details are mentioned further in this article.

GRUH Finance & Bandhan Bank merger: why are they merging?

The RBI’s new licensing guidelines mandated that Bandhan Bank’s promoter Bandhan Financial Holdings Limited reduce its stake from 82% to 40% within 3 years, to 20% within 10 years, and to 15% within 12 years of commencing its business.

The 3-year deadline ended on August 23, 2018.

Upon failure to reduce its promoter shareholding, the RBI withdrew its general permission to open new branches and also froze the remuneration of Mr. Chandra Shekhar Ghosh, MD, and CEO, at existing levels.


For reducing the promoter stake, the bank had three options:

  1. Offer for Sale
  2. Inorganic Growth by way of Mergers & Acquisitions
  3. Primary or secondary fundraising, i.e., IPO or FPO

The Board of Directors of Bandhan Bank and GRUH Finance have since met separately and approved the “merger co-operation agreement,”. This will bring down promoter shareholding in the merged entity to around 61%.

HDFC, which is the largest stakeholder in GRUH Finance, will reduce its stake in GRUH Finance from 57.83% to 14.96% in the merged entity.

HDFC will also seek approval from the RBI to retain up to 15% in the merged entity since as per the current rule, it can hold only up to 10%. If the requisite approval is not obtained, they will have to reduce their holding to 9.9%.

As of FY18, the position of Bandhan Bank and GRUH Finance stands as under:

Bandhan Bank GRUH Finance
Branch Presence 938 194
Employees 30,431 692
Total Advances (Rs. Crores) 33,373 16,663
Total Deposits (Rs. Crores) 33,869 1,515
Capital Adequacy Ratio 32.60% 18.90%
Gross NPAs 1.30% 0.88%
Return on Assets 4.30% 2.57%

Bandhan Bank & GRUH Finance merger: advantages

Though the merger may be driven by regulatory compulsions, it does offer synergies.

GRUH Finance extends loan facility to low income and economically weaker sections of the society.

It has a major presence in the rural and semi-urban areas of Western India.

Bandhan Bank, on the other hand, is predominantly present in Eastern India, with focus on microlending.

A merger with GRUH Finance will enable Bandhan Bank to reduce risk arising out of geographical concentration, diversify its product portfolio, and still target the underpenetrated market.

GRUH Finance was established as a subsidiary of HDFC in 1986 with the intent to provide housing finance to lower income segments. However, over the years, HDFC has itself ventured into providing loans to the lower income segments.

During H1FY18, 37% of the loans approved by HDFC in volume and 18% in value have been to weaker sections. This recomposition of loan book could have led to 2 scenarios – Merger of GRUH Finance with HDFC or selling off its stake in GRUH Finance.

Merging with Bandhan Bank made geographic and monetary sense.

Since GRUH Finance trades at very high valuations against its trailing book values, the addition will potentially be expensive and book value dilutive for Bandhan Bank.

However, with a diversified portfolio of microlending and housing finance, it will strengthen Bandhan Bank’s presence in the economically weaker section and low-income group segments in affordable housing.

It will also improve Bandhan Bank’s Return on Equity.

The merger, at least for now, seems to be a “win-win” for all parties involved.

Happy investing!

Disclaimer: the views expressed here are of the author and do not reflect those of Groww.