“We expect it will provide meaningful and significant benefits to Indian consumers and businesses, as well as to IDBI Bank, Digit, IIFL Capital and to Fairfax for many decades to come. We believe that a unified financial services company that can offer a one-stop solution for the financial needs of Indians will be of significant benefit to India and its economy and represents an incredible opportunity for IDBI Bank and Fairfax to benefit from the continued growth of an emerging market with a growing middle class,” he said in a statement issued by Fairfax.
On Wednesday, The Cabinet Committee on Economic Affairs (CCEA) approved Fairfax Financial Holdings 60.72 per cent stake buy in IDBI Bank for about Rs 52,878 crore. This comprises of 30.48 per cent stake held by government of India and 30.24 per cent stake held by LIC in the bank.
“We assure the Government of India that we are committed to building the world’s finest financial institution from India. This transaction represents a once-in-a-lifetime opportunity to purchase a majority interest in a bank in one of the world’s fastest growing economies and to combine it with a successful and growing insurance company and an established provider of investment banking and wealth management services in the same jurisdiction,” Watsa said.
“We expect bank assets and deposits in India to continue to grow, and we feel that a newly-revitalized IDBI Bank that can also offer clients insurance products through Digit and investment banking and wealth management services through IIFL Capital would be in a very competitive position to take advantage of this growth,” he said.
Fairfax’s objective in buying the 60.72 per cent interest in IDBI Bank is to make it, over time, a leading global Indian bank headquartered in India. To assist in achieving this objective, Fairfax proposes to contribute all of it interests in Go Digit Life Insurance Limited and Go Digit General Insurance Limited (collectively, “Digit”) and all of FIH’s interest in IIFL Capital Services Limited (“IIFL Capital”) to IDBI Bank, the statement said.
As a leading unified Indian financial services company, IDBI Bank would have the ability to become a leading provider of not just banking services in India, playing a critical role in enhancing India’s credit-to-GDP ratio, but also property and casualty insurance services, investment banking and wealth management services, and has the potential to significantly transform the lives of average Indian citizens, it added.
The approval of the Reserve Bank of India will be required for the proposed combination.
“We are very excited about the prospect of combining Digit with IDBI Bank as it would significantly strengthen Digit’s distribution footprint, allowing us to continue our growth and service offerings for the benefit of all Indians,” said Kamesh Goyal, Founder and Chairman of Digit.
“This partnership would create a unique opportunity for IIFL Capital to accelerate growth across investment banking, institutional equities, wealth and asset management,” said Nirmal Jain, Founder of IIFL Group.
“By combining our capital markets expertise with the scale and customer reach of a leading bank, we can bring a broader range of investment and wealth solutions to millions of customers. Given the significant under-penetration of wealth and asset management in India, we believe this combined platform would be exceptionally well positioned for long-term growth,” he said.
Fairfax currently expects the purchase price for the Purchase Transaction to be satisfied through a combination of cash on hand or otherwise available to Fairfax through existing credit sources and potential asset sales.
Digit and IIFL Capital would be contributed to IDBI Bank at their respective market prices, all in accordance with all applicable law and regulation.
In addition to the approval of the Reserve Bank of India and all other necessary legal and regulatory approvals, each of the Contribution Transactions will be subject to the review and the approval of the Securities and Exchange Board of India, and the Digit Contribution will be subject to the approval of the Insurance Regulatory and Development Authority of India.
Fairfax expects that the operations of the newly combined company would continue to be led by Rakesh Sharma, the current Managing Director and Chief Executive Officer of IDBI Bank.
Fairfax also plans to include in the leadership group for IDBI Bank C. VR. Rajendran, the former Chief Executive Officer of CSB Bank, as well as N. S. Kannan, the former Managing Director and Chief Executive Officer of ICICI Prudential Life Company and Chief Financial Officer of ICICI Bank, who will act as Chairman, all subject to approval of the Reserve Bank of India.
Each of Sharma, Rajendran and Kannan are well-known to Fairfax, and have proven to be capable and effective executives of Indian financial institutions over decades, it said.