Vaya offers unsecured, income-generating loans. Credit: micheile dot com on Unsplash.

Indian private sector lender IDFC First Bank is closing in on a deal to buy Vaya Finserv’s entire microfinance loan portfolio for around INR10bn ($120.7m), the Hindubusinessline reported, citing a source familiar with the development. 

“The portfolio buyout is intended at meeting the priority sector loan (PSL) requirements of IDFC First Bank. Vaya would remain a continuing entity after the buyout,” the source was quoted by the publication as saying. 

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Founded in 2014, Vaya is a microfinance company with operations in seven Indian states and a team of more than 1,900, according to its website. 

It leverages the peer group lending model to offer unsecured, income-generating loans. 

As per the report, some of Vaya’s employees are likely to join IDFC First Bank, especially in regions where the bank does not have microfinance operations. 

As of 31 March 2022, Vaya’s loan book was valued at INR12.02bn ($145m) and its net worth was INR3.1bn ($37.4m). 

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The lender hopes to complete the buyout by early January 2023. 

Lenders are choosing portfolio buyouts over standard M&As more and more frequently because they offer favourable values and give the buyer and seller freedom in how to arrange the deal.

More importantly, these acquisitions do not require regulatory clearances, which a bank may seek in an M&A deal. 

In the past two years, Kotak Mahindra Bank has pursued this path, the report said. 

Sources claim that since 2018, Vaya has been looking for equity finance. “Many investors including Multiples Equity led by Renuka Ramnath showed interest, but Covid played the spoilsport. Valuations demanded by Vaya was also very steep and it came to a point where portfolio buyout was the best option the buyer was willing to offer,” said the above-cited source.