No. As of now there is no arbitrage, as you should factor in atleast 10% capital gains tax (assuming you want to sell long term existing holdings of IDFC First bank)
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I have been intrigued why people kept on holding IDFC Bank ( and still are doing so ). Do you think arbitrage risk is still so high ? Tax is not a matterā¦it is a merger, you will get taxed only on incremental gain !..holding period is same. Any other points where the people are still holding IDFC Bank !!? and I am missing thoseā¦
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Not really. Tax does matter, especially if you are already holding IDFC First bank and want to sell these and buy IDFC Limited. You will need to sell these in open market and then you will be taxed at 10% (Long term holding) or 15% (short term holdings). At current rates, this tax will wipe out the arbitrage difference
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In the long term, IDFC First Bank is expected to benefit from the merger. The bank will have access to a larger customer base and a wider distribution network, which could help in improving its financial performance. This, in turn, may lead to an increase in the share price, benefiting IDFC Bank shareholders.
The merger is also expected to result in cost synergies and operational efficiencies. The combined entity will be able to leverage its resources effectively, leading to potential cost savings and improved profitability. This could positively impact IDFC First Bankās stock performance in the medium to long term, benefiting shareholders.
Additionally, the merger could enhance the overall stability and sustainability of the bank. The increased scale and diversified business mix may contribute to reducing risks and improving the bankās resilience in the face of economic uncertainties.
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The capital gains tax on sale of idfc first bank is something you would anyway have had to pay in future (if not now). It does not take away the arbitrage (maybe it might take away 10 pct of the arbitrage value) . If you arbitrage then your new acquisition cost is reset to current level and future capital gains tax starts from the this new level. I may be wrong but kindly recheck your calculation.
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Both the companies will benefit by the merger. IDFC Ltd shareholders more so, as they get to participate directly in the growth of live wire IDFCB. And they are getting a good premium which gives them an enhanced start.
VV can work more freely as he has to interact only with his own board. Although it must be said that during the last three years there was no evidence of any interference by the IDFC board in the working of the bank, which was a factor in the excellent performance so far.
With the merger out of the way, it appears that the bank would grow at a faster clip. On the TV screen VV looked relieved and promptly announced a raising of additional capital of 2000 crores by the end of current year, to underline his strong intent for growth. This is on top of 1500 crores raised last week and 600 crores being added along with the merger. This is a large amount of injection within one single year in an already well capitalised balance sheet.
HDFC Bank is also feeling euphoric with the disappearance of their promoter and have announced an intent of doubling every four years. It shows that the banking industry sees the Indian economy booming for many years. I also think that Indian economy has never been on such a sound footing in its entire history. And the boom has already begun sometime last year.
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ļ· Loans and Advances grew from Rs. 1,37,663 crores as of 30-June-2022 to Rs. 1,71,420 crores as of 30-
June-2023, YoY growth of 24.5%. The QoQ growth was 6.7%.
ļ· Customer Deposits grew from Rs. 1,02,868 crores as of 30-June-2022 to Rs. 1,48,508 crores as of 30-
June-2023, YoY growth of 44.4%. The QoQ growth was 8.6%.
ļ· CASA deposits increased by 26.7% on a Y-o-Y basis.
ļ· Excluding the outflow of one large government banking current account (as already called out in Q4-
FY23 results) the QoQ growth of Customer Deposits was 10.3%, and QoQ growth of CASA was 2.9%.
ļ· CASA Ratio stood at 46.5% as of June 30, 2023, as compared to 49.8% as of March 31, 2023, as
incrementally during Q1 FY 24, the Bank raised more fixed deposits than CASA deposits.
ļ· The Bank continues to maintain high asset quality parameters in its loan book.
ļ· The Bank maintained average Liquidity Coverage Ratio at 125.4% for the quarter ended on 30 June
2023.
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anyone study about in/out & valuations & fairvalue after merger plz share
Now we understand why the bank increased itās interest rate in CASA recently. Itās very tough to maintain CASA in the 50 % level.
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IDFC FIRST Bank MD & CEO Mr V Vaidyanathan speaksā¦: IDFC FIRST Bank MD & CEO Mr V Vaidyanathan speaks to Zee Business on the IDFC Ltd merger - YouTube
Upto 10 lakh, they have decreased to 4%
Above 10 lakh customer will convert his money into fd. Thatās why fd has increased.
I personally feel they are not able to underwrite quickly.
Reason might be 1) planning to raise capital at higher valuations or 2) stringent underwriting.
Could this be a magazine indicator?
IMHO, most of the benefits mentioned here do not accrue in the IDFC-IDFC First Bank amalgamation (they do hold in case of the HDFC-HDFC Bank merger, though).
IDFC FB will not have access to a larger customer base and wider distribution network, simply because IDFC Limited is a holdco with no operating businesses (after the sale of the AMC), and hence brings no new customers or distribution network for IDFC FB to gain from.
As regards cost synergies and op efficiencies, again none for Bank, so no improved profitability or improved stock performance on this count. Thought, IDFC Ltd shareholders will gain as the costs at the Corporate level will get extinguished.
Lastly, no benefits of increased scale and diversified businesses to help improve the bankās resilience, as there are none.
That said, it does help stability in the sense that there will now be no entity with a large ownership of the Bank, and the shareholding will be 100% public, a la HDFC Bank/ ICICI Bank. In addition to this, another benefit for the Bank is the increase in BVPS by 5% (due to the cash of approx INR 600 cr and the 1.55 swap instead of the 1.65 that IDFC shareholders held in the Bank through IDFC-IDFCFHCL structure).
Prima facie, It appears to be a win-win, even if not fully fair to IDFC Ltd shareholders. IDFC Ltd shareholders get most of the value unlocking by collapse of the holding company structure, and the Bank shareholders get to capture a part of the value so created.
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Under the āScheme of Arrangementā filing (on the BSE) on 3rd July 2023, IDFC First Bank stated:
In so far as the proposed utilisation of securities premium account to set off the accumulated losses as set out in Clause 32 of the Scheme is concerned, the book value of shares, IDFC FIRST Bankās net worth, equity capital structure and shareholding pattern will all remain unchanged. Thus, this is balance sheet neutral action and will not result in reduction in the paid-up share capital of IDFC FIRST Bank. This shall also enable IDFC FIRST Bank to explore opportunities which benefit the shareholders (including dividend payout) (Emphasis mine).
It appears to me that during the interviews with V, no one asked him about the bankās plans on the dividend front.
I donāt expect them to pay a dividend now. But perhaps they are going to start paying a dividend sooner than they otherwise would have. If this is true, then thatās some benefit for IDFC First Bank shareholders.
Depending on your cost of acquisition of shares, the dividend yield may or may not be a big deal. But in the end, it all adds up.
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Since theyāre anyway planning to raise more capital (2500cr towards the year end), thereās no point in paying out dividend.
Dividends should start only when they earn enough, probably by H2 of FY25
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To simplify things, does this rational work?
Indian economy is going to grow, the management is honest and good. Ignore the market volatility and sit tight for a decade and let your investment grow? This bank may not be the next HDFC or ICICI bank but over the next decade it can grow with Indian economy narrative and generate serious wealth for itās shareholders?
So keeping that into perspective what could be if any important metrics to track annually for this bank?
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Dividend never makes sense for banks. Banks are traded at book value which is 2-3x.
If bank gives Re1 as dividend, investors will get Re1 (minus tax) and share price will reduce by Rs3 so eventually a loss of Rs2+
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Eventually a loss of 2 rs? Share price might go down by the divident amount on the date, but it would go up after that. For long term investors thats not a factor at all.