HDFC Bank merges with HDFC Ltd

HDFC Ltd, India's biggest housing financing firm, is going to merge with HDFC Bank, the largest private sector bank in the country, to form a corporation with a net worth of Rs 3.3 lakh crore and a combined balance sheet of Rs 17.87 lakh crore.
HDFC Bank will remain India's second-largest lender after State Bank of India, its size will be more than double that of the country's third-largest lender, ICICI bank, after the merger.
The deal is scheduled to close in 18 months, conditioned to regulatory approvals, and in Q2 or Q3 of FY24. The amalgamated organisation would be led by Sashi Jagdishan, CEO and MD of HDFC Bank, while the present CEO of HDFC, Keki Mistry will join the board of directors as a the director. Deepak Parekh, the chairman of HDFC since 1978, will retire. According to the chairman of HDFC Bank, Atanu Chakraborty, board composition will be discussed with the Reserve Bank of India (RBI).
Parekh said: “We had to find a home for ourselves after 45 years in housing finance, supplying 9 million homes to Indians. We found it within our own family in our own bank."
"Several regulations for banks and NBFCs have been coordinated over the past few years, allowing for a potential merger." Furthermore, the ensuing larger balance sheet would enable for the underwriting of large ticket infrastructure loans, accelerate credit development in the economy, enhance affordable housing, and increase lending to priority sectors, including agriculture," he added. HDFC's subsidiaries and affiliates will become HDFC Bank subsidiaries and associates once the programme is fully implemented. HDFC shareholders will get 42 HDFC Bank shares, each with a nominal value of Rs 1 for 25 shares placed in HDFC Ltd.
According to the proposal, HDFC's equity shares in HDFC Bank will be cancelled. From the first year onwards, the merger will be EPS positive. Public shareholders would own 100% of HDFC Bank, with existing HDFC shareholders owning 41%.
The RBI's clearance will be crucial because the merger bank will possess 48 percent of life insurance, 50 percent of general insurance, and 69 percent of the group's AMC businesses, as found out by Macquarie Research.
In a letter to the RBI, HDFC has requested more time and a gradual outlook to meet SLR, CRR, and priority sector lending requirements. Permission has also been acquired for the bank to maintain and, if necessary, expand its position in HDFC Life Insurance and continue to have a stake in HDB Financial Services. The RBI is taking these requests into account.
The requested transaction checks all the boxes in terms of product completion, product, home loans product leadership and other retail assets products, a customer base and distribution strength that can be used to cross-sell a full suite of financial products according to Shashi Jagdishan.Given that HDFC Bank is India's largest mortgage lender, analysts predict that the merger will result in considerable market share gains for HDFC Bank. The largest and most transformative merger in the Indian financial services sector, according to Samir Bahl, CEO, Anand Rathi Advisors' Investment Banking. "Through this acquisition, HDFC Bank gains an unrivalled advantage in the mortgage portfolio, offering it with a massive jump in distribution to rural and semi urban areas, as well as a large chance to cross-sell," says the statement.
According to S&P Global Ratings, the merger will increase HDFC Bank's loans by 42% to Rs 18 lakh crore, boosting its market share to 15% from 11% currently. The announcement evidently enthralled investors, as HDFC scrip ended 9.3% higher at 2,678.9 per share on BSE, while HDFC Bank finished 9.97% higher at 1,656.45 per share.