Vehicles pass by IndusInd Bank Branch at Prabhadevi, Mumbai, India. (Photographer: Anirudh Saligrama/BloombergQuint)

What Brokerages Are Saying About A Potential IndusInd Bank-Bharat Financial Merger

The merger of Bharat Financial Inclusion with IndusInd Bank could turn out to be profitable for the bank, said brokerages, a day after the lender and the micro-finance company announced signing of an exclusivity agreement on a possible merger.

Brokerages have also maintained their stance on IndusInd Bank stock. The deal will likely value Bharat Financial at about $2.2 billion, according to a Bloomberg News report.

Here’s what brokerages said on the merger talks:

CLSA On The Potential Merger

  • Benefits for Bharat Financial Shareholders: Lower regulatory risk and funding costs.
  • Benefits for IndusInd Post Merger: Ability to leverage Bharat FInancial’s Tier I CAR of above 30 percent (also capital release) and PSLC fees.
  • The impact on IndusInd Bank’s earnings depends on the pace of normalisation of business for Bharat Financial.
  • There could be some rise in IndusInd’s asset-risk profile post-merger as the share of micro-finance company rises to 8 percent of loans.
  • Post-merger, we expect consolidated RoAs and RoEs to be 2.1 percent and 19.0 percent respectively.
  • The deal is also expected to improve the common equity tier 1 ratio to about 15.5 from 14 percent currently.

On IndusInd Bank

Motilal Oswal

  • The IndusInd Bank- Bharat Financial merger will create the most profitable universal bank.
  • Bharat Financial can generate higher return on equity.
  • The merger, if successful, will add about 6.6 percent to IndusInd Bank’s existing loans and about 6 percent to its balance sheet.
  • Post-merger, the share of retail will increase to about 47 percent.
  • The potential acquisition of Bharat Financial will bring along a strong sales force network and supporting technology infrastructure.

JP Morgan

  • Stock Rating: Maintain ‘Overweight’.
  • Target Price: Hiked to Rs 1,975 from Rs 1,675.
  • Acquisition accretive with some near-term integration risks.
  • The merger will give IndusInd Bank, a firm footing in micro-finance segment.
  • Expect IndusInd Bank will enhance Bharat Financial's profitability via lower COF, better operational discipline and, over time, cross-selling.
  • With about 6 percent move in IndusInd Bank on Monday (Nifty +0.7 percent), it seems to indicate that the market is looking for the short-term risks.


  • Stock Rating: Maintain ‘Outperform’.
  • Target Price: Unchanged at Rs 1,625.
  • Expect 9 basis points and 95 basis points improvement in steady state Return on assets and Return on equity respectively, on the back of this acquisition for IndusInd Bank.
  • Micro-finance institutions loans would comprise 9.7 percent of post-merger IndusInd Bank advances.
  • Will not expect a boost to CASA ratio from the merger.
  • Lower cost of funds, lower operating costs, better capital efficiency and higher leverage are key synergy benefits.


  • Stock Rating: Maintain ‘Neutral’.
  • Target Price: Unchanged at Rs 1,800.
  • IndusInd merger with Bharat Financial could be EPS accretive by FY19-20.
  • Microfinance to generate high ROEs for IndusInd Bank; Expect Tier I ROE to increase by 75 basis points.
  • IndusInd's EPS post-merger to increase by 1 percent and 5 percent in FY19 and FY20 respectively, assuming swap ratio of 0.67 and funds savings of 125 basis points in FY19/20.
  • Net interest margins to be higher by 40-45 basis points in FY19-20 estimates to 4.4-4.5 percent.

Deutsche Bank

  • Stock Rating: Maintain ‘Buy’.
  • Target Price: Unchanged at Rs 1,850.
  • Long-term positive for IndusInd Bank.
  • Value, earnings accretive by FY19.
  • IndusInd Bank becomes a dominant player in the micro-finance space with the merger.
  • Micro-finance business under a bank setup will be more profitable.
  • Better MFI prospects, lower funding cost, and better leverage are the key benefits for IndusInd Bank.


  • Expected swap ratio of 1.6-1.7 Bharat Financial shares for 1 share of IndusInd Bank.
  • We believe that the investors can play the short-term merger upside through Bharat Financial which potentially has more merger-related upside compared to IndusInd Bank.
  • Higher growth, lower funding cost for Bharat Financial assets, offering deposits to Bharat Financial customers, front loaded provisions in Bharat Financial are the key positives.
  • Expect funding cost to fall by 80-100 basis points.
  • Merger to add 6 percent to loans, 9 percent to assets under management and around 40 basis points to gross NIMs.