SHCIL deal: IDBI gains on ready platform

Nov 21 2012, 14:43 IST
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SummaryIDBI Bank says that the merger of SHCIL to itself will help it add 20 per cent of its branch network at less than 10 per cent of its employee strength.

IDBI Bank says that the merger of Stock Holding Corporation of India Limited (SHCIL) to itself will help it add 20 per cent of its branch network at less than 10 per cent of its employee strength.

It is also hopeful of cross-selling its banking products to almost 8 lakh high-value customers of SHCIL and will also derive benefits from its tech savvy businesses of custodial services, depository services, document storage and digitisation and also the broking business. But will this acquisition provide IDBI the gains in line with what HDFC Bank got from acquiring Centurion Bank of Punjab and what ICICI Bank got from acquisition of Bank of Rajasthan.

While the deal is not directly comparable with respect to the acquisitions done by HDFC Bank and ICICI Bank, since majority of the 227 offices of SHCIL can be converted into branches, the opinion on the street is that it is definitely going to benefit IDBI by way of adding around 200 branches at one go and also adding to their client base and improve CASA (current account and saving account) ratio.

On its own, SHCIL has a stable business, revenues and profits with limited growth opportunity but the market expects that after its merger with IDBI, there will be inflow of business from other banks and financial institutions that have interests similar to SHCIL and thus will generate synergy benefits.

While the bank has been growing fast both in terms of its deposits and credit and also on the NPA (non-performing assets) front over the last couple of years and is expected to do well in the medium term, experts are of the opinion that the deal is immaterial to the book value and ROE of IDBI Bank and thus does not raise any concern for the bank on that front. The only factor that needs to be watched out is the valuation. Last year IFCI bought 17 per cent in SHCIL for Rs 300 crore valuing it at Rs 1,800 crore and if IDBI provides the same value then it may turn out to be an expensive deal. Experts tracking the bank say that with a profit of Rs 40-60 crore for SHCIL, the valuation of Rs 1,800 crore will be on the higher side.

However since it is a no-cash deal, IDBI will see a rise in its equity base which is only positive for its Tier

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