Learning why banks consolidate with examples from India and Poland

1. International
Banking and
Finance
Consolidation
of Banks
Pridhi Aggarwal K-12754
Priyal Madan K-12737

2. Introduction
● Consolidation refers to the process of combining a number of things
into a single more effective or coherent whole.
● In business, it usually refers to Mergers and acquisitions of smaller
companies into larger ones.

3. Benefits of Consolidation Challenges of Consolidation
● Enhanced risk taking Capacity
● Power to finance bigger projects
● Revenue Enhancement
● Cost reduction
● Strengthened Market Position
● People Issues
● Technology Integration
● Data Integration
● Regulatory Environment

4. Parameters
for Selecting
Target Bank
Quality of
Capital
Culture
and HR
Policies
Technology
Platform
Synergies

5. IDFC BANK (INDIA)
➢ IDFC was incorporated on 30 January, 1997 with its registered office in Chennai and started
operations on June 9, 1997. In 1998 the company registered with the Reserve Bank of India
(RBI) as a non-banking financial company and in 1999 it formally became a Public Financial
Institution.
➢ To conform with RBI guidelines, IDFC founded a non-operative financial holding company IDFC
Financial Holding Company Limited in 2014 to manage its five subsidiaries IDFC Bank, IDFC MF,
IDFC Alternatives, IDFC IDF & IDFC Securities.
➢ IDFC Bank started operations in 19 October 2015, with 23 branches in Madhya Pradesh, Delhi,
Mumbai, Hyderabad, Bengaluru, Pune, Chennai, Ahmedabad and Kolkata.

6. CAPITAL FIRST (INDIA)
➢ Capital First Ltd. was an Indian non-bank financial institution providing debt financing to small
entrepreneurs, MSMEs (Micro, Small and Medium Enterprises) and Indian consumers. Capital
First was founded in 2012 by V. Vaidyanathan.
➢ The company was listed on NSE and BSE. The market cap of the company grew from 7.81 billion
(31 March 2012) to ₹60.96 billion (31 March 2018)
➢ Capital First provides debt financing services to entrepreneurs, Micro, Small, and Medium
Enterprises; and Indian consumers, with a focus on the emerging middle class.
➢ It provides financing ranging from as low as ₹ 10,000 to ₹ 20 million for a wide range of tenures
ranging from as low as 6 months to up to 15 years.

7. IDFC BANK AND CAPITAL FIRST
MERGER
The shares of Erstwhile IDFC Bank Limited were
listed in the exchanges in November 2015.
➢ The bank diversified from being a
predominantly infrastructure financier to
wholesale banking operations. Since a
large portion (90%) of the bank was
wholesale (infrastructure and corporate
loans) ,the company swiftly put together a
strategy to realise its loan book.
➢ As part of its strategy to diversify its loan
book, the bank was looking for a merger
with a retail finance institution with
adequate scale, profitability and
specialized skills.
➢ Capital First, in the meanwhile, was on the
lookout for a commercial banking license
in order to access large pool of funds for
growth and to access low cost of funds

8. ➢ In January 2018, IDFC FIRST Bank and Capital First announced that they had reached an
understanding to merge with each other and shareholders of Capital First were to be
issued 139 shares of the merged entity for every 10 shares of Capital First.
➢ Thus, IDFC FIRST Bank was founded as a new entity by the merger of IDFC Bank and
Capital First on December 18 2018.

10. KEY FINANCIAL INFORMATION

11. Banking Sector in Poland
Banks in Poland account for about 70% of financial sector assets and play a significant role
in the country’s financial system.
Poland is home to several state-owned banks, though most banks in the country are privately
owned, taking around 80% of the market.
The Commission for Banking Supervision is responsible for supervising financial institutions
and banks in Poland. It is an autonomous body under the Narodowy Bank Polski or the
National Bank of Poland.

12. Consolidation of Banking sector
in Poland
❏ In the first half of the 90s, the cooperative banks and small private banks, which
were in financial difficulty, were taken over by domestic banks.
❏ Later, Mergers and acquisitions taking place were associated mainly with
privatization
❏ In 2000s, large banks controlled by the same foreign investors merged within their
capital groups to eliminate competition between entities controlled by the same
owner.
❏ Poland's entrance to EU resulted in cross-border consolidation. It relied on taking
over of subsidiaries by branches of their parent banks in Poland. Takeovers of
parent banks resulted in immediate mergers of their subsidiaries.

13. Bank Millennium
❏ Bank Millennium S.A. is a Poland based commercial bank, with headquarters in
Warsaw
❏ It is owned by the Portuguese bank Millennium BCP and was established in
1989 as Bank Inicjatyw Gospodarczych BIG SA
❏ In 1992 the Bank’s shares, debuted on the Warsaw Stock Exchange. In 1997 the
Bank merged with Bank Gdański SA (1997).
❏ In cooperation with its Portuguese shareholder and partner Banco Comercial
Portugues (BCP), the Bank launched the Millennium retail service network and
today BCP holds 50.1% shares of Bank Millennium.

14. Euro Bank
❏ Euro Bank SA was a Polish commercial bank offering financial services to
individuals.
❏ It was established in 2003 by taking over Look Finansowanie Inwestycji,
controlled by Mariusz Łukasiewicz, a controlling stake existing since 1990 from
Bank Społem S.A. In 2003, Bank Społem S.A. changed its name to Euro Bank S.A.
❏ After the founder's death in 2004, the Société Générale Group became the owner
of Eurobank.

15. Bank Millennium’s acquisition of
Euro bank
❏ On November 5, 2018, Bank Millennium and Société Générale signed a contract
for the purchase of Euro Bank by Bank Millennium.
❏ On May 31, 2019 Bank Millennium S.A. took over Euro Bank as a result of
acquiring about 99.79% of the shares for a reference price of PLN 1,833 million.
❏ As a result of the merger, the ownership of Euro Bank (all assets and liabilities)
were transferred on the day of the merger to Bank Millennium.
❏ The rationale behind the Polish acquisition was to reach clients in specific parts
of Poland rather than to grow in size

16. Conclusion
Due to constant changes in regulatory environment and low interest rates, the
revenues of banks in Europe continue to be in pressure.
Increasing compliance costs and shrinking revenues have affected the smaller banks.
Thus, apart from internal restructuring measures, banking groups typically consider
M&A routes .
Moreover, the coronavirus crisis delivers a fresh hit to the financial sector as European
banks already remains vulnerable and fragile from the financial and debt crises