If concluded successfully, the deal will bring to an end the independent history of Bharat Financial, initially christened as SKS Microfinance, one of the successful microfinance companies in India.
"The agreement primarily provides for confidentiality of information/discussion and finalisation of the terms and contitions relating to the proposed transaction with a view to entering into a definitive documentation after the necessary approvals," Bharat Financial said in a release.
The agreement provides for a mutually agreed exclusivity period for due diligence and discussions to evaluate a potential strategic combination between the two companies.
"The Exclusivity Agreement provides for a mutually agreed exclusivity period for due diligence and discussions to evaluate a potential strategic combination between the company and BFIL by way of ambulation through a Scheme of Arrangement, or any other suitable structure," IndusInd said in a release to the exchanges.
The transaction between the two companies would be subject to due diligence, agreement on the appropriate transaction structure, definitive documentation and Board, shareholders, regulatory, NCLT and other third-party approvals, as applicable, the release said.
Once the deal goes through, BFIL will become a bank, which will give huge benefit to IndusInd's cost of funds. BFIL's cost of funds is likely to fall by 100 basis points post the deal.
Morgan Stanley Mauritius Co. holds a 6.74 percent stake in Bharat Financial Inclusion, while East Bridge Capital Master Fund, Mathews India Fund, Amansa Holding and BNP Paribas Arbitrage own close to 3 percent each.
The microfinance company was founded by Vikram Akula in 1997 which Akula pushed a for-profit microfinance model in India from the earlier no-profit model, arguing that this is the only way to attract talent and investors to lending to the bottom of the pyramid.
In August 2010, SKS Microfinance became India’s first listed microfinance company.