Shriram Transport Finance Co's rating is not immediately affected by the announcement of IDFC's proposed merger with Shriram Group, Fitch Ratings said as per the PTI report. Shriram Transport, the flagship company of Shriram Group that provides financing for used commercial vehicles, is unlikely to be affected based on the proposed group structure, it said. Fitch believes regulatory approval from the RBI will be the biggest hurdle to the proposed merger.
"The RBI had previously taken the view that banks cannot undertake any business activity through a separate entity that can be done within the bank, and the proposed structure of having a non-bank financial institution alongside the bank could be a significant barrier to the merger," Fitch said. IDFC Group and Shriram Group last week announced that they have agreed to discuss a merger plan over a 90-day period. During this time, the managements would look to finalise details such as swap ratio, and seek the requisite approvals from various regulators overseeing banking, insurance, and capital markets. "In the event the merger proceeds, Fitch would review the final terms of the merger and assess the impact on the rating based on the final structure, the role of Shriram Transport within the larger IDFC Group and any potential synergies that Shriram Transport may derive from the merger," Fitch said.
Any changes that materially alter or impact Shriram Transport's standalone profile could lead to a review of its rating, the US-based agency said. "While it may be difficult to assess the impact of the merger now, the agency is cautious about the potential benefits for Shriram Transport, which has a unique business model, and a different customer base and distinct culture compared with IDFC Group, which transformed from an infrastructure finance company to a commercial bank in 2015," Fitch said.