The announcement comes just a month after another private sector bank, IDFC Bank, acquired Grama Vidiyal Micro Finance. However, unlike IDFC Bank’s acquisition, KMB said BSS Microfinance will not merge with it, but operate as a subsidiary.

Explaining the rationale behind the acquisition, Narayan SA, president (commercial banking), KMB, said, “The capabilities and processes required for this customer segment (weaker sections) are unique, and cannot be created easily or organically in a short span. BSS is of the right size, culturally compatible with Kotak, and has proven its processes and value systems over a decade.”

As of June, BSS operated out of 78 branches in 20 districts of Karnataka, and had a gross loan portfolio (GLP) of Rs 483 crore, which grew by 33% year-on-year. Its growth, however, pales when compared to that of the microfinance industry, which saw its combined GLP growing by 88.8% during the same period.

Narayan said the main reason behind the anaemic growth of BSS was lack of equity capital, which will no longer be an issue after the deal. He added that the acquisition has a non-compete clause with the promoter and chairman of BSS, Ramesh Bellamkonda, who currently owns the 99.49% equity in the company that KMB is acquiring.

The price KMB is paying for BSS seems to be a bargain if one compares it with valuations that listed microfinance institutions command, although two of them are armed with a small finance bank (SFB) licence.

Ujjivan Financial Services, for instance, is currently trading at 3.8 times of its FY16 book value of Rs 118.4 per share. Equitas Holdings is trading at 3.5 times of its FY16 consolidated book value. Even a much smaller Arman Financial Services, which doesn’t have an SFB licence, commands a P/BV of 2.9.

KMB, on the other hand, is paying just 2.03x to shareholders of BSS.