merger of hdfc ltd with hdfc bank

The merged entity, twice the size of ICICI Bank, will be the second lender; RBI approval will be important

India’s largest housing finance company, HDFC Ltd., will merge with the country’s largest private sector bank, HDFC Bank, to form an entity with a combined balance sheet of ₹17.87-lakh crore and net assets of ₹3.3-lakh crore. .

While HDFC Bank will continue to be the second largest lender in the country after State Bank of India, post-merger its size will be double that of ICICI Bank, the third largest lender.

The closing of the deal is expected to be achieved within 18 months, subject to regulatory approvals and likely to be completed by Q2 or Q3 of FY24. Shashi Jagadeesan, CEO and MD, HDFC Bank, will head the merged entity, and Keki Mistry, the current head of HDFC, will join the new company’s board as a director. Deepak Parekh, who has been associated with HDFC since 1978, will step down as chairman.

HDFC Bank Chairman Atanu Chakraborty said the composition of the board will be addressed in discussions with the Reserve Bank of India (RBI).

‘Home for you’

“After 45 years in housing finance, providing 90 lakh houses to Indians, we had to find a home for ourselves. We have found it in our family and in our bank,” Parekh said at a press conference on Monday.

“Over the years, various rules have been harmonized for banks and NBFCs, enabling possible mergers. In addition, the resulting large balance sheet will allow underwriting of big ticket infrastructure loans, accelerate the pace of credit growth in the economy, promote affordable housing and increase the quantum of credit to the priority sector, including credit to the agriculture sector, “They said. ,

After the Scheme becomes effective, HDFC’s subsidiary and associate will become a subsidiary and associate of HDFC Bank. As on the record date, HDFC shareholders will receive 42 shares of HDFC Bank, each of face value of ₹1 for 25 shares held in HDFC Ltd.

The equity shares held by HDFC in HDFC Bank will be liquidated as per the plan. The merger will lead to EPS accretion from the first year itself. Public shareholders will hold 100 per cent of HDFC Bank and existing shareholders of HDFC will hold 41 per cent of HDFC Bank.

RBI approval

According to Macquarie Research, the RBI approval will be a significant monitorable as the merged bank will hold 48 per cent in life, 50 per cent in general insurance and 69 per cent in the group’s AMC entities.

HDFC has written to the RBI seeking a timely and phased approach for SLR, CRR and priority sector lending. The bank’s permission has also been sought to continue holding in HDB Financial Services and increase its stake in HDFC Life Insurance, if required. These requests are being considered by RBI.

composite unit

“The proposed transaction ticks all the right boxes in terms of complementing product offerings, product leadership in home loans along with other retail property products, delivery power and a customer base that needs to be cross-linked to a full suite of financial products. Can be leveraged to sell,” said Shashi Jagadeesan.

Analysts said the merger would provide significant market share for HDFC Bank, given that HDFC is the largest mortgage financier in India. Sameer Behl, CEO, Investment Banking, Anand Rathi Advisors termed it as the biggest and most transformative merger in the Indian financial services sector. He said, “With this merger, HDFC Bank gets an unparalleled advantage through mortgage portfolio, which gives it a huge leap in distribution in semi urban and rural areas and provides a huge opportunity to sell bank products. Is.”

S&P Global Ratings said the merger would increase HDFC Bank’s debt by 42 per cent to Rs 18 lakh crore, as well as increase its market share to around 15 per cent from the current 11 per cent.

Investors were clearly enthused by the announcement as HDFC stock closed 9.3 per cent higher at Rs 2,678.9 on BSE, while HDFC Bank gained 9.97 per cent to close at Rs 1,656.45.

Published on

April 04, 2022