CSB Bank merger with IDBI Bank likely after Fairfax deal

While Fairfax has the option to pare its stake, a merger is likely to be favoured. “Fairfax is more likely to merge CSB with IDBI Bank. Now that it is known that CSB’s shareholding needs to change as part of the IDBI Bank deal, a potential stake sale would not yield good valuations,” said Abizer Diwanji, founder of advisory firm NeoStrat Advisors.

Case for a merger

CSB’s book is also complementary to IDBI's, as they are largely present in southern India, said Diwanji, who had also worked on the 2005 merger of IDBI Bank with its parent development finance institution, the Industrial Development Bank of India (IDBI).

At the end of the June quarter, CSB Bank had 868 branches, with 31% in Kerala, 16% in Tamil Nadu, 13% in Andhra Pradesh, and 11% each in Maharashtra and Karnataka. The remaining 22% were distributed across other states, its first-quarter presentation showed.

A similar breakdown is not available for IDBI Bank, whose loan portfolio also differs from CSB Bank’s. Once dominated by corporate lending, IDBI Bank has shifted towards retail loans over the years. As of 30 June, corporate loans accounted for 30% of its ₹2.6 trillion loan book, down from 38% five years ago.

Together, IDBI Bank and CSB Bank have a loan book of ₹3 trillion and a deposit base of ₹3.7 trillion. While IDBI Bank is valued at 1.11 times its book value, CSB Bank commands a slightly higher valuation of 1.26 times, according to data from financial database Ace Equity.

“Since Fairfax holds a controlling stake in CSB, paring it down will take time and could also be difficult given the valuation constraints,” said one of the two persons cited above on the condition of anonymity, adding that a merger between the two entities looks like the most probable outcome.

“It now needs to be seen how much time the regulator (RBI) gives it (Fairfax) to bring the merger into effect,” the person added.

Meanwhile, Pralay Mondal, chief executive of CSB Bank, told analysts in July that questions about the bank's fate should be directed to Fairfax and that CSB has never had any conversation, negotiation, or discussion on this point.

Mondal said he asked Fairfax this question and was told to continue business as usual. “Nothing changes for you,” Mondal, who had earlier held senior roles at Axis Bank and Yes Bank, quoted Fairfax as having told him.

“For example, when doing the tech transformation, we asked them that IDBI is Infosys, so should we take Infosys or Oracle? Finally, we took Oracle. Fairfax has left the decision to the management to decide how to run the bank,” said Mondal.

Founded more than a century ago as Catholic Syrian Bank, CSB Bank has undergone several changes. Fairfax bought a stake in the lender for ₹1,210 crore in 2018 and held a 50.1% stake ahead of its 2019 initial public offering (IPO). That year, the bank was rebranded as CSB Bank.

Case for a stake sale

Not everyone is betting on the merger, though. Some are expecting the sale of the CSB Bank stake to an external investor.

“CSB Bank is an institution with the right kind of governance and has always had a strong presence in the segments it chose to focus on,” said Vivek Iyer, partner and financial services risk leader at Grant Thornton Bharat.

Iyer said that any investor who comes in will still have significant upside, since CSB can expand its view of the markets where it seeks to generate greater returns for the institution and the investor.

Others see the deal as significant not just because it provides control of a large bank, but because it could complete the foundations of a diversified financial-services ecosystem in India.

The bank, said Shah, adds what every financial conglomerate ultimately needs: a national banking platform with a deposit franchise of over ₹3.25 trillion and a capital adequacy ratio of 26.65%, providing both funding strength and growth capacity.

Shayan Ghosh

Shayan leads the coverage for banking and finance in Mint. Based in Mumbai, he has spent 15 years as a journalist, joining the Mint team in 2018. Over the years, he has tracked the Reserve Bank of India (RBI), commercial banks, and the complex world of shadow banking.His expertise goes beyond just reporting news, and he specializes in explaining the "why" behind India’s financial shifts. Shayan has covered major milestones in the industry, including the rollout of the Insolvency and Bankruptcy Code (IBC), mergers in the banking and non-banking space, and the many challenges facing the country's credit markets. He has tracked cases of wrongdoings at India’s private sector banks and murky boardroom battles, trying to get behind the scenes.Shayan is driven by a commitment to accuracy and clear, honest reporting. He believes in making finance easy to understand, ensuring his readers and investors stay informed about the forces shaping their money. When not at work, he tries to hone his amateurish photography skills, read fiction, and listen to music. You can follow his work and updates on LinkedIn and Twitter/X.

Sneha Shah

Sneha Shah is the editor for deals and startups at Mint. Starting off her career in India’s financial capital as a cub reporter for the Mid-day newspaper in the mid-2000s, she later moved on to decode balance sheets and follow the money trail for some of the leading pink publications in the country. She has been covering India’s deals ecosystem for nearly two decades now, closely tracking private- and public-market funding, startups, private equity, venture capital, and investment banking. From breaking some of the biggest deal stories of the past to doing some incisive deep-dives into the latest trends and turnarounds in the industry, she has witnessed the phenomenal growth and transformation of the country’s investment ecosystem from really close quarters. A graduate in journalism, she has worked with The Economic Times, Financial Chronicle, VCCircle and Mid-Day before starting her second stint at Mint in 2022. As a keen observer of India’s startups ecosystem, she aspires to write a book some day, chronicling some of the most inspiring stories the industry has seen so far in its remarkable journey.