IDFC Bank in talks over purchase of RBS's Indian corporate banking business

IDFC Bank is reportedly in advanced negotiations over the potential acquisition of Royal Bank of Scotland's (RBS) corporate banking portfolio in India, thought to be worth up to INR 30bn ($440m). IDFC, which is taking steps to become a universal bank, will use the acquisition to widen its branch network across India's cities, while also adding more customers and acquiring a stronger corporate loan book, according to the bank. Meanwhile, RBS continues with its strategy of selling non-core assets, and returning to focus on its domestic and core operations.

MUMBAI: IDFC Bank is in advanced negotiations to purchase Royal Bank of Scotland’s corporate banking portfolio in a deal pegged at up to Rs 3,000 crore, said two people with direct knowledge of the plan. A successful acquisition will allow IDFC, which recently started operations as a universal bank, to widen its branch network in India’s biggest cities, add more customers and acquire a stronger corporate loan book, they said.“This will help kickstart IDFC Bank, especially personal and corporate banking, a little earlier,” said one of them. “It will give IDFC Bank presence in mid-corporate, consortium lending and retail banking… The valuation could be anywhere between Rs 2,000 crore and Rs 3,000 crore.” RBS India called a town hall meeting on Tuesday and announced the partial sale of its businesses to employees. No details were made available. Spokespersons for RBS and IDFC said they don’t comment on market speculation.IDFC Bank Managing Director Rajiv Lall was unavailable for comment. Investment bankers familiar with the plan said such deals are usually struck at one to oneand-a-half times a bank’s net worth. RBS, which is in the process of winding down its operations in India, has assets of Rs 10,500 crore in 10 branches and savings deposits of Rs 2,000 crore, the second person said, adding that its net worth amounts to Rs 3,000 crore. IDFC Bank, which got its banking licence in July 2015, will have access to those 10 branches located in the metros and additional interest income from the loan book. It can also sell a wide range of financial products from the branches, boosting fee-based income.Besides this, setting up new branches in the big cities would have required the establishment of branches in towns and villages under Reserve Bank of India guidelines. Acquiring those belonging to RBS may mean saving on this cost. If the deal goes through, the new bank will be able to ramp up its customer base quickly. “The acquisition will give IDFC a heads-up in acquiring customers and also help them scale up,” said Alpesh Shah, partner at consultant Boston Consultancy Group.“IDFC will begin with servicing this customer base and cross-selling its other products.”Some consultants said funding and integration would be challenges that have to be met.“The cost is a significant issue of acquisition for IDFC Bank,” said a partner at a large consultancy firm. “The bigger issue is of integration for IDFC.” But bankers said IDFC has enough of a war chest.“IDFC Bank is well capitalised for the acquisition with a capital adequacy of around 19%,” said a banker familiar with the negotiations. “It has a share capital of Rs 13,300 crore, which is after providing Rs 2,000 crore toward provisions.”Singapore-based DBS Group , Southeast Asia’s largest bank, was also said to have been in the race to buy the assets. The RBS exit from India is part of a global restructuring plan. In April 2015, it sold the division financing diamonds and jewellery to IndusInd Bank. A few months later it sold the retail loan portfolio to RBL Bank and the private wealth management business to its management team backed by private equity funds.As part of the Bharat Bank initiative that encompasses its rural and financial inclusion efforts, IDFC is in the process of purchasing a 10% stake in ASA India, a Bangladesh-headquartered microfinance firm with more than 100 branches in West Bengal Assam , Tripura, Bihar and Uttar Pradesh.IDFC was founded in 1997 as a private sector lender by a consortium of public and non-state investors, focused on giving money to infrastructure companies.In October, the assets and liabilities of the lending business were transferred to the bank and the non-bank-related business housed in IDFC Ltd. These include asset management business IDFC Mutual Fund, IDFC Securities and IDFC Alternatives.IDFC Bank has a balance sheet of Rs 73,450 crore and a net worth of Rs 13,320 crore, primarily funding large corporate clients. It began operations with 23 branches, of which 15 are in rural areas in the Hashangabad, Khandwa and Harda districts of Madhya Pradesh and has chosen a strategy to service rural areas as a microfinance institution.