Bharat Financial in advanced talks for stake sale
DURING THE APRILJUNE QUARTER, BHARAT FINANCIAL WROTE OFF ₹176 CR WORTH OF LOANS. IT POSTED A LOSS OF ₹37 CR AGAINST A PROFIT OF ₹236 CR IN THE YEARAGO QUARTER
Bharat Financial Inclusion Ltd, India’s first listed micro finance institution (MFI) is in advanced talks of finalising a buyer for its business,said two persons aware of the development. Credit Suisse, the investment bank appointed by Bharat Financial, is in the final stages of discussion with prospective buyers--IndusInd Bank Ltd and RBL Bank Ltd and the deal is likely to be announced within the month, they said.
The deal will likely be an allstock deal. The swap ratio being considered is one share of IndusInd Bank for 1.75 shares of Bharat Financial; for RBL, the swap ratio mooted is 2:1, said one of the two people cited earlier.
Talks about Bharat Financial looking for a buyer have been doing the rounds for several months now pushing up its share prices sharply. On Thursday, Bharat Financial shares closed at ₹945.8 down 0.53% from a day ago. The stock had hit a high of ₹966 on Tuesday, a level last seen on November 12, 2010.
A spokesperson of Bharat Financial in an emailed statement said, “We do not intend to respond to market speculation. However, as informed earlier, the Company has been exploring various options from time to time.”
Bharat Financial is a widely held company and any such decision will have to be present by the board to shareholders for their approval.
IndusInd Bank spokesperson did not respond to emails and calls. Credit Suisse declined to comment.
A RBL spokesperson in an emailed response said that the bank does not have any “interest” in the transaction.
Bharat Financial is facing stiff competition from banks, both universal and small finance banks and handle more than 70% of the microloans business.
Differential rules too don’t help. Microfinanciers’s interest charges and spreads are capped while a single borrower cannot take loans from more than two institutions. There are, however, no such restrictions on banks.
The invalidation of high value notes last year which dented the cash economy further made life harder for micro finance firms. Bharat Financial, for instance, reported a gross bad loans ratio of 6% at the end of June compared to 0.1% a year earlier. In the AprilJune quarter, it wrote off ₹176 crore worth of loans, and posted a loss of ₹37 crore compared to a profit of ₹236 crore a year ago.
The note ban pushed up credit costs for the microfinance industry to 5-8% in the current fiscal compared to 1% the previous year, said Supreeta Nijjar, vicepresident, rating company ICRA.
This led Bharat Financial to evaluate three options—to continue as an independent entity, offer strategic stake to a bank and to be taken over by another bank completely. “They are considering complete stake sale now,” said the second of the two people cited earlier. The firm has finalised the plan to sell the entire stake, this person added.
RBI norms allow banks to buy up to 10% in the microfinancier or fully acquire it.
“Acquiring a microfinancier will allow a mid-sized bank to buy the operational machinery that may not have been set up by it so far. Also, 10-15% of micro finance customers are upwardly mobile,” said Jindal Haria, associate director, financial institutions, India Ratings and Research.
“The only thing that needs to be seen is how the bank will manage the credit risk that comes along with such acquisition.”