IDFC management has clarified in their investor calls that their preference is to go for reverse merger and are now hopeful that the post RBI IWG guidelines becoming policy, reverse mergers would be allowed for Non-operating Financial Holding companies (like IDFC, Ujjivan, etc.). The RBI IWG says that NOFHCs should not own any other companies/businesses, hence IDFC will have to first sell the AMC business and then pursue reverse merger with the bank. In case of reverse merger, IDFC Bank shareholders will have to agree and approve the swap ratio (will likely be less than the 1.4 ratio at which IDFC currently holds the bank shares).
How can it be less than 1.4 IDFC First shares? Shareholders own it indirectly and with reverse merger will own it directly. This is not a swap. Shares kept in IDFC companyâs demat will be given to shareholders.
Am I missing something?
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Itâd be a reverse merger to be approved by NCLT. Reverse merger also means the bank will have to assume any contingent liabilities (incl tax liabilities) of IDFC as part of the merger as IDFC would cease to exist after the merger. Hence, IDFC Bank shareholders (incl institutions like Warburg, etc.) have to agree to the swap ratio. This is per my conversation with the investors relations at IDFC.
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Hi All,
Any idea or timeline by which the RBI intends to either accept or reject the Internal Working Group recommendations?
Couldnât find any info to this regard.
And does the government then have to make a law to allow disallow the recommendations of the IWG?
ebb0397a-11a3-4e4f-834a-a415476c0821.pdf (1.2 MB)
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Sorry for the naive question, but can anyone kindly explain the number 8 item
âShare of net profit / (loss) of associates and joint ventures accounted for using equity methodâ which leads to eventual loss every quarterâŚ
.
as far as I know, only banking and AMC business left in IDFC Limited now and both are profitableâŚso what is causing this loss at holding company levelâŚ
Not much clarity on this topic:
This article indicates that it could a while.
I see RBI wanting to move all banks to same structure of NOFHC but it could take a while as this year focus will be on the COVID. May be it will happen in few months but betting on government to act swiftly for investment gains wouldnât be recommended strategy 
May be IDFC needs to file petition in the Supreme court to get things moving along. Kotak was able to get promoter holding approved. May be Supreme court directive or initiating process therein might prod RBI/Govt. Thatâs the only hope I see now but unlikely to happen 
I think itâs really good question and may not be a naive at all. There are scant disclosures in IDFC First Bank and IDFC financial disclosures.
Given the list of associates and JV on page 10 of IDFCâs above filing, I am pretty sure it is coming from IDFC First Bank. But IDFC First Bank did report profit for Dec 2020 quarter. I think disclosures of IDFC First Bank are missing details about bankâs equity.
Looking at annual report of IDFC on page 168, IDFC First had losses in other comprehensive income in addition to net loss. Since changes in OCI donât flow through income statement, I guess IDFC First bank has not reported these in last quarter. IDFC Firstâs equity get reflected on the IDFCâs balance sheet as an asset. IDFCâs above release shows banking assets going down by about 243 cr on page 12.
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Thanks a lot for this elaborated response,
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So now we have to find out what are these losses in OCI which dont show in P&L of IDFC First Bank but flows to P&L of IDFC Limited and where does IDFC First Bank put these while reporting their numbersâŚ
Good point but I think the difference is not because of any OCI item but because of the use of two different accounting standards. IDFC Bank reports its results under IGAAP and IDFC under IndAS.
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â The report of the RBI constituted Internal Working Group set-up
to review the extant licensing guidelines and regulations
relating to ownership and control in Indian private sector banks
is supportive of our unlock value strategy for our shareholders
We are awaiting final RBI guidelines relating to ownership and control in
Indian private sector banks to formally move ahead and execute on our
unlock value strategy
â HDFC loan of INR 200 crore has been fully paid-off
From investor presentation
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Hi hcpl,
Any idea about when RBI might issue the final guidelines for the same. Is there any ball park estimate to the same.(Management was talking of it coming before end of fiscal year- seems unlikely)
Happy to know any rumours toođ
Anyone else know about this.
Thanks all
Not sure at allâŚ
For valuation purposes we take a ballpark figure of 18 months !
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Does anyone on the forum work in the Mutual Fund Industry?
Wanted to ask:
- How is IDFC looked at by competitors/what is the reputation
- Future prospects of the mutual fund as an Industry insider
- Valuations if it were to be sold- can it sell for 3500 Crore?
Thanks and would appreciate any help.
NOT an Industry Insider but in My Opinion the Future is of Index funds and ETFs, although in the near term Mutual funds will do great as people are becoming more aware about investments and the idea of keeping money in cash or using a savings account or FD for that matter for growing money is going out of fashion.
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IDFC is the 5th largest fund house in India after SBI, HDFC, Axis and ICICI. Aum is approx 1.2L Cr. However, most of its assets are held in debt funds, where margins are lower than pure equity funds.
Mutual fund penetration in India is much lower than the world average and many other developed economies. While the US has its AUM more than the countryâs GDP at 103 per cent, it is only 11 per cent in India. The world average is 55 per cent. Low penetration of mutual funds in India is also evident from the equity mutual fund AUM to GDP ratio of 4 per cent, compared with 63 per cent in the US (as per CAMS DHRP)
Typically a multiples based valuation approach is followed, the latest being 5% of AUM. Of course, the listed/to be listed peers like HDFC and LIC are valued at 15-20% of AUM, but 5% is conservative and analysts rating IDFC use the same as well, their valuation in % terms improves as they improve their equity-debt mix (equity being high margin).
So, I feel the AMC business is worth atleast 6k crore, and the remaining market cap being atttributed to its stake in IDFC First Bank.
So, is IDFC currently trading at dirt cheap prices? Wholehearted yes acc. to my calc, but I will wait until IDFC First raises its 3k capital and see if IDFC participates in it or not.
Disclosure: Invested, biased, not a registered SEBI advisor, please consult your advisor before investing.
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Both the representatives from the Government in IDFCâs Board have been recalled by the Govt. (both being infra experts). Signs of things to come? 
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Most likely government is going to sell its stake from IDFC and IDFC First Bank. This could be overhang on the price of the IDFC unless they find some large investor to pick up govtâs stake.
Hi all, any specific reason why IDFC Ltd has 26% voting rights while having 40% shares?
RBI Licensing conditions
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Many of you who are studying idfc for long may alredy know this but is there any analysis on why the swap ratio from idfc to idfc first is 1.4 : 1 or approximately around it.
Any insights are appreciated