After IPOs, Acquisitions Dominate Microfinance Sector

Amid rumours of IndusInd Bank acquiring Bharat Financial or former SKS Microfinance, which was the first to go IPO route to successfully raise funds, markets are set to turn their attention to the lucrative market segment again.

Private Banks have increasingly turned their attention to microfinance institutions as the IPO route has clearly indicated their potential not only as junior partners but also as truly dependent units for both statutory social obligations as well as profitable banking operations.

Though IndusInd and Bharat Financial have declared to SEBI that an announcement would be made whenever necessary, the markets still moved positively with Bharat Fin’s shares going up by 2.82% touching Rs.823 on Sensex Wednesday, while IndusInd registered a fall by 1.88% to Rs.1,283.

The increasing activity in microfinance sector is visibly more as banks require statutorily to put in part of their funds in social sector and microfinance firms come in handy to fulfil the obligation. The ongoing bond between the banking sector and the microfinance has turned commercially viable last year when eight MFIs had been granted RBI licence to become Small Finance Banks.

Bharat Financial Services or erstwhile SKS Microfinace was among those rejected the SFB option by RBIis route and acquistion is more ideal for Hindujas-backed IndusInd Bank now. Last year, more than 10 major deals of M&A and IPOs have made the microfinance sector most visible on the national business radar.

Microfinance major Bandhan turned into a full-fledged bank and Chennai-based MFI Equitas Holdings raised Rs.720 crore in its IPO, in addition to Rs.650 crore it received from anchor investors ahead of the IPO. Bangalore’s Ujjivan raised Rs.885-crore IPO, oversubscribed nearly 41 times.

In Jan 2016, IDFC Bank bought 9.99% stake worth Rs.8.5 Crore in ASA International India Microfinance, while DCB Bank acquired a 5.81% stake in Odisha-based Annapurna Microfinance for Rs 9.99 crore. In April 2016, SBI FMO Emerging Asia Financial Services Funds acquired 10% stake in Delhi-based MFI Satin Creditcare Network but Hyderabad-based MFIs SHARE Microfin and Asmitha Microfin decided to swap certain businesses, ahead of a possible merger.

In July, IDFC Bank acquired the entire stake in Chennai-based MFI Grama Vidiyal Microfinance for an undisclosed amount, in a first-of-its-kind transaction, where a bank has taken over a microfinance institution (MFI). Soon in October 2016, Kotak Mahindra Bank bought over 99.49% stake in Bengaluru-based BSS Microfinance for ₹139.20 crore and RBL Bank acquired a 9.99% stake in Uttar Pradesh-based Utkarsh Microfinance, that has been given SFB license by RBI.

Falling in line, India Infoline Finance Ltd (IIFL Finance) said it will acquire Bengaluru-based Samasta Microfinance for an undisclosed amount, while the year 2017 witnessed the first major M&A in the sector with Bharat Financial going to merge with IndusInd, if talks are successful.

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