(Bloomberg) -- Bandhan Bank Ltd., India’s newest, will combine with mortgage financier Gruh Finance Ltd., in a $11.7 billion deal bringing the lender closer to meeting the regulator’s shareholding rules.

Investors in Gruh Finance will get 568 shares of Bandhan Bank for every 1,000 they own, according to exchange filings from the companies on Monday. Gruh Finance is a unit of India’s Housing Development Finance Corp. The deal would be valued at about 818 billion rupees ($11.7 billion), calculations based on closing share prices on Monday showed. The combination will be subject to regulatory and shareholder approvals, according to the filings.

The deal will reduce Bandhan Bank founder and Chief Executive Officer, Chandra Shekhar Ghosh’s stake in the lender to 61 percent from 82 percent. The Reserve Bank of India imposed penalties on the bank after it missed a September deadline to bring Ghosh’s stake down to 40 percent, in line with bank ownership rules. The RBI froze any further increases in Ghosh’s pay and withdrew the bank’s right to open new branches without seeking prior approval.

“Though driven by a need to comply with regulations, this merger will help Bandhan to quickly diversify its loan book beyond the micro-loans,” Siddharth Purohit, a Mumbai-based banking analyst at SMC Global Securities said by phone. “It also helps in removing the regulatory overhang.”

Bandhan Bank Ltd. fell 5.8 percent before the announcement, which came after market hours on Monday, while Gruh Finance declined 4.1 percent.

The deal will create a lender with a 500 billion-rupee loan book and 4,182 outlets, according to the statement. The merged entity will have more than 31,000 employees.

“The merger would help Bandhan Bank achieve product and geographic diversification,” the lender said in the statement. “Gruh will get access to a wider distribution network, a larger customer base and low cost deposit base of Bandhan Bank.”

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