Mumbai: Bandhan Bank Ltd is set to acquire mortgage lender Gruh Finance Ltd via a share swap, a move aimed at cutting the bank’s promoter holding and expanding its housing finance portfolio, two people with direct knowledge of the development said.

Shareholders of Gruh Finance, which is 57.83% owned by Housing Development Finance Corp. (HDFC) Ltd, will receive three shares of Bandhan Bank for every five shares held in the home financier, the people said. The swap is based on the six-month weighted average price of the shares of the two companies, they said, requesting anonymity.

“As a part of the deal, HDFC will also cut its stake further by around 5.5% (in the merged entity) by selling shares to a clutch of public institutional investors or in the secondary market so that HDFC’s total holding as a promoter in the combined banking entity is brought down below 10%, which is in accordance with the bank ownership norms stipulated by RBI (Reserve Bank of India)," said one of the two people cited earlier.

At 1.30pm, Bandhan Bank shares traded 3.585 lower at 509.75 per share on the BSE. Intraday, the stock fell as much as 4.74% to 503.55 per share.

The merger could be announced as early as this week following board meetings of the two companies on Monday.

RBI’s banking licence rules required Bandhan Financial Holdings Ltd to halve its stake from 82.3% to 40% within three years of starting business. RBI had in September placed restrictions on Bandhan Bank for its failure to meet the rules by freezing branch expansion and remuneration of founder and chief executive Chandra Shekhar Ghosh.

Bandhan Bank currently commands a market value of around 63,000 crore, while Gruh Finance has a market cap of around 23,000 crore. The six-month volume weighted average prices of Bandhan Bank and Gruh Finance are at 528.61 and 318.50, respectively, on BSE.

On that basis, the merger will result in HDFC’s ownership falling to 15.44% in the merged entity and Bandhan Financial’s share dropping to around 60.27%.

Given that Bandhan Financial’s stake is still above the RBI-stipulated 40% norm, it will have to take more steps to cut its ownership in Bandhan Bank.

The proposed deal entails HDFC emerging as a promoter for Bandhan Bank, apart from being the promoter of India’s largest private lender HDFC Bank, where it owns 19.72% as of 30 September. RBI also does not allow the promoter of one bank to hold more than 10% in another bank as a promoter.

To meet this requirement, HDFC is in talks with a clutch of institutional investors to sell at least 5.5% in the combined entity, according to the second person cited earlier.

Emails sent on Saturday to spokespersons for HDFC and Bandhan Bank remained unanswered.

On 22 December, The Times of India reported that Bandhan Bank and HDFC are in discussions for a possible merger between Bandhan and Gruh Finance. The report, however, did not specify any modalities of the deal.

In regulatory filings in response to exchanges seeking clarification on the news report, the two companies had declined to comment on what they termed market speculation.

In the September quarter, Gruh Finance disbursed loans worth 2,738 crore. The loan book stood at 16,663 crore at the end of the quarter. The home financier, which is primarily focused on retail segment, recorded a net profit of 220 crore for the first half of the current fiscal.

The merger could be announced as early as this week following board meetings of the two companies on Monday-
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