Confirming months of speculation and conjecture, IndusInd Bank and Bharat Financial Inclusion Ltd (BFIL) have signed a mutually exclusive agreement to assess a potential merger between the two, say news reports. Statements issued by both the companies say that they are going to evaluate and discuss a ‘potential strategic combination’. 

Earlier this year, IndusInd Bank had said that talks were on with multiple business entities for business expansion, including BFIL. This new development effectively removes RBL Bank from being a potential acquirer. “The company has entered into an exclusivity agreement with IndusInd Bank for agreeing to have an exclusive discussion with IndusInd Bank about the proposed potential strategic combination by way of amalgamation through a scheme of arrangement, or any other suitable structure,” Bharat Financial Inclusion said in a regulatory filing.

“The exclusivity agreement provides for a mutually agreed exclusivity period for due diligence and discussions to evaluate a potential strategic combination between the company and BFIL,” IndusInd Bank said. BFIL Chief Executive Officer and Managing Director M R Rao said the merger would result in lower cost of funds and would help the company offer its customers savings products.

Despite the announcement, neither of the companies stated the duration of the exclusivity period. BFIL, formerly SKS Microfinance, already has a business correspondent relationship with IndusInd in Karnataka. Analysts have said that the merger, if it happens, is likely to benefit both the organisations. The potential merger will take place through a share-swap, as both the companies are listed. 

The merger, if successful, will be the third big deal for IndusInd Bank, after the deals with Deutsche Bank’s Credit Card portfolio and RBS Diamond Financing Book in 2011 and 2015, respectively. The news of the prospective merger resulted in shares of both the companies gaining in the stock market, as shares of IndusInd surged 5.5% and BFIL rose by 3.3%.