Bandhan Bank-Gruh Finance merger

In January 2019, Bandhan Bank, one of India's leading private sector banks, announced the acquisition of Gruh Finance, a subsidiary of the erstwhile Housing Development Finance Corporation Ltd. (HDFC). The merger brought together two companies with complementary strengths and expertise. In this article, we will look at the history of both the companies and the reasons behind the merger.

The merger was seen as a strategic move for Bandhan Bank, which sought to diversify its loan portfolio and expand into new markets. By acquiring Gruh Finance, Bandhan Bank gained access to a well-established network of branches and customers in the affordable housing finance segment, a key growth area in India's banking sector.

The merger was completed in October 2019, with Gruh Finance becoming a wholly-owned subsidiary of Bandhan Bank. As part of the deal, HDFC Ltd. received a 15% stake in Bandhan Bank's Gruh finance, making it one of the largest shareholders in the bank.

Bandhan Bank was founded in 2001 as a microfinance institution, providing small loans to low-income individuals and entrepreneurs. Over the years, it expanded its operations to become a full-fledged bank. It received its banking licence from the Reserve Bank of India in 2014. Today, Bandhan Bank is one of the fastest-growing banks in India, with a presence in 34 states and union territories. It has over 5,000 banking outlets, and a customer base of over 2.6 crore as on March 31, 2022.

Gruh Finance was founded in 1986 as a subsidiary of HDFC Ltd., one of India's leading housing finance companies in India. Gruh Finance focuses exclusively on affordable housing finance, providing loans to low-to-mid income level individuals and families. Over the years, it has established a strong presence in the affordable housing finance market, with a customer base of over 20 lakh and a network of over 200 offices across India.

Before the merger, Bandhan Bank had a total asset base of over ₹80,000 crore and a loan portfolio of over ₹60,000 crore. Gruh Finance, on the other hand, had an asset base of ₹17,000 crore and a loan portfolio of Rs. 15,100 crore.

While Bandhan Bank focused on microfinance and retail banking, Gruh Finance had a strong presence in affordable housing finance. This made the merger a logical step for both companies to leverage each other's strengths and expand their operations.

One of the primary reasons for the merger was that Bandhan Bank wanted to expand its operations beyond its core markets in East and Northeast India. Through the Gruh Finance acquisition, it ventured into new regions such as Western and Southern India. Gruh Finance has a strong presence in these regions and has expertise in affordable housing loans. By acquiring Gruh Finance, Bandhan Bank can leverage its established network and customer base to accelerate the expansion plans.

Also, for Bandhan Bank, the acquisition of Gruh Finance will help in diversifying the loan portfolio and reduce the dependence on microfinance loans, which account for over 85% of its loan book. It will also enable Bandhan Bank to tap into India's growing demand for housing finance.

The merger also presents opportunities for cost savings and operational synergies. By combining their operations and systems, the two companies can improve efficiency, leading to lower costs and improved profitability.

After Gruh Finance merger with Bandhan Bank, the combined entity has a network of over 4,000 branches and a loan book of around ₹1.2 lakh crore ($16.3 billion), making it one of the largest banks in India.

Customers, shareholders, and other stakeholders are expected to benefit from the merger. Customers gain access to a broader range of products and services. At the same time, shareholders can expect to see an improvement in profitability.

Overall, the merger between Bandhan Bank and Gruh Finance is a strategic move that aligns with both companies' growth plans and expansion.