India’s largest private lender HDFC Bank has announced that it had agreed to take over the biggest domestic mortgage lender in a deal valued at about $40 billion. This will create a financial giant in what is perceived to be the largest deal in India’s corporate history. The proposed entity will have a combined asset base of around Rs 18 lakh crore. The HDFC-HDFC Bank merger is expected to be completed by the second or third quarter of FY24, subject to regulatory approvals.
HDFC-HDFC Bank Merger: How Customers Will Be Affected
Customers of HDFC Ltd and HDFC Bank will get combined benefits of both the organisations, including savings accounts, mortgages, life insurance, health insurance, general insurance, investment products, credit cards, and personal loans.
“As per management, nearly 70 per of HDFC Bank’s 68 million customers do not have housing loans, and thus the merger will provide an opportunity to cross-sell mortgage loans, while HDFC Limited’s customers will be offered banking products. HDFCB’s cost advantage will make the housing loan business much more competitive amid the rising dominance of banks in the segment,” said Emkay Global Financial Services in a research note.
The HDFC-HDFC Bank merger will help expand the customer base and build a product portfolio in the housing loan category. “HDFC Bank’s loans are expected to increase by 42 per cent to around Rs 18 lakh crore and increase the market share to about 15 per cent, from 11 per cent currently,” said Manoj Dalmia, founder and director of Proficient Equities Limited. This means that new home loan customers can get loans at a lower rate of interest than existing customers after the merger is complete. For existing loan account holders, a change in operational activities is also anticipated but the same is likely to be implemented only after the merger is done.
On the other hand, deposit interest rates are not likely to be affected by existing customers since the interest rates are kept unchanged until maturity. Most analysts however said since the amalgamation is 12 to 18 months away, it is difficult to predict the exact impact on customers.
HDFC-HDFC Bank Merger Deal
The move was unexpected and took everyone by surprise, with markets giving their thumps up to the merger as it skyrocketed on Monday. As per most analysts, the move will prove beneficial to everyone, ranging from customers investors and the banking system as a whole.
Under the proposed deal, share exchange ratio will be 42 equity shares each of HDFC Bank for every 25 equity shares held in HDFC Ltd. “… after considering the recommendation and report of the Audit Committee and the Committee of Independent Directors, the Board of Directors of HDFC Bank, at its meeting held on April 4, 2022 approved a composite scheme of amalgamation HDFC Investments and HDFC Holdings, into and with Housing Development Finance Corporation Limited (HDFC Ltd); and HDFC Ltd into HDFC Bank, and their respective shareholders and creditors,” HDFC bank said in a filing on Monday.
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