IDFC Bank is reportedly in advanced talks to buy Royal Bank of Scotland (RBS's) corporate banking portfolio in an estimated deal worth about Rs 3,000 crore.
IDFC, which recently commenced operations as a universal bank, will be able to expand its branch network in India's biggest cities if the deal goes through.
"This will help kickstart IDFC Bank, especially personal and corporate banking, a little earlier," a source told The Economic Times. "It will give IDFC Bank presence in mid-corporate, consortium lending and retail banking... The valuation could be anywhere between Rs 2,000 crore and Rs 3,000 crore."
The latest move to sell its corporate banking business is part of RBS' decision to pull out of the Indian market as it looks to focus on consolidation in the home market. Currently, the bank has assets worth Rs 10,500 crore in 10 branches and savings deposits of Rs 2,000 crore, which will value its business at Rs 3,000 crore.
The acquisition will enable IDFC to gain access to those 10 branches located in the metros, which will accrue additional interest income to the bank. Besides, it can increase fee-based income by selling a range of financial products from the branches.
The deal will also help IDFC to grow its customer base "quickly" as setting up branches in the cities on its own would involve huge costs and also require opening branches in towns and villages under Reserve Bank of India guidelines.
"The acquisition will give IDFC a heads-up in acquiring customers and also help them scale up," said Alpesh Shah, partner at consultant Boston Consultancy Group, according to the daily. "IDFC will begin with servicing this customer base and cross-selling its other products."
However, IDFC would face challenges in funding and integration areas after the deal, according to some consultants.
"The cost is a significant issue of acquisition for IDFC Bank," said a partner at a large consultancy firm. "The bigger issue is of integration for IDFC."
As part of its global restructuring plan, Britain's state-owned bank RBS had sold its diamonds and jewellery financing division to IndusInd Bank in April last year. It had also sold its retail loan portfolio to RBL Bank last year.