HDFC Bank to merge with HDFC Ltd.

  • The merger will take 12–18 months to complete and will result in HDFC shareholders owning a 41% stake in HDFC Bank.
  • HDFC Bank currently has a 21% promoter holding. Post the merger, HDFC Bank will be 100% owned by shareholders, and there will be no promoter holding.
  • For every 25 shares of HDFC Ltd, shareholders will get 42 shares of HDFC Bank.
  • The shareholders of both entities will benefit from the low cost of funding, larger balance sheet, synergies across revenue opportunities, and cross-selling of products.

How will the merger benefit the merged entity?

The proposed merger is slated to result in an array of benefits according to the officials. Some of them include:

Reducing HDFC Bank’s exposure to unsecured loans

The merger will bring together HDFC Ltd’s expertise in housing finance and HDFC Bank’s expertise in scaling, distributing, and servicing the loan.

Cross-selling opportunities

The amalgamated entity will be able to cross-sell banking and housing finance products to its existing and new customers. Both the entities will be able to use their respective strengths to their advantage, increasing profitability.

Low-cost funding for HDFC Ltd

The NBFC, upon merger with HDFC Bank, will be able to access well-diversified low-cost funding in addition to the 68 million customers of HDFC Bank. This will also give the merged entity an advantage over its peers in the banking industry.

HDFC Bank will build a home loan portfolio

The housing market is set to boom with Government initiatives to support affordable housing for all, RERA and infrastructure developments. The credit-strapped market is looking for credit, and the housing loan market can benefit heavily from this. The merger with HDFC Ltd will give HDFC Bank access to building a sizable home loan portfolio, which will increase the size of their overall loan books. HDFC Bank’s existing 68 million customers will be able to seek home loans post the merger seamlessly.

Large-ticket loans

The merger is set to create a balance sheet of Rs 25.61 lakh crore, the second-highest after SBI. Thanks to their large balance sheet, the merged entity will be able to underwrite large-ticket loans. This will give them access to a select clientele who trusts HDFC Bank and wants to get a large-size home loan.

Expedite Priority Sector Lending (PSL)

This would also allow the merged entity to increase the lending to priority sectors, as stipulated by the Government. This would include lending to agriculture, MSMEs, housing, education, renewable energy, etc.

FII interest

HDFC Ltd VC and CEO Keki Mistry said that the merger has the potential to attract a 7–8% increase in participation from foreign investors.

Diversity of assets

The merged entity will enhance the diversity of its assets and will reduce the incumbent single product risk.

The takeaway

The merger is likely to happen in the second or the third quarter of FY24, subject to all approvals. It will add value to both the customers and the entities’ shareholders. However, there are massive regulatory costs that both companies will have to assess carefully moving forward

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Stockrani

Stockrani

Gain Financial Literacy and Freedom.