Parent HDFC to merge with HDFC Bank

Deal to create financial behemoth with assets exceeding ₹27.24 lakh cr.

April 04, 2022 09:46 pm | Updated 09:46 pm IST - Mumbai

HDFC Bank Branch in Ahmedabad.

HDFC Bank Branch in Ahmedabad. | Photo Credit: VIJAY SONEJI

Mortgage lender HDFC Ltd. and India’s largest private sector bank HDFC Bank Ltd. on Monday announced that their respective boards had approved an all stock amalgamation that would see the latter’s parent merge itself with the bank to create a financial behemoth with combined assets of about ₹27.24 lakh crore (as of September 2021).

Shareholders of HDFC would receive 42 shares of HDFC Bank (each of face value ₹1) for 25 shares held in the mortgage lender (each of face value ₹2), and the equity share (s) held by HDFC in HDFC Bank would be extinguished as per the scheme.

The proposed merger is subject to approvals from regulators including the RBI and IRDA and would take about 12 to 18 months to complete, top executives of both entities said at a press conference.

HDFC chairman Deepak Parekh said he would not be on the bank’s board post merger as he was already above 75.

The housing finance major’s vice chairman and CEO Keki Mistry who is 67, would join the board of the bank and be on it for about a-year-and-a-half and was likely to oversee the mortgage department and investor relations, he added.

“We will not be thrown out as this is not a hostile merger,” Mr. Parekh said. “The son [HDFC Bank] has grown older and is acquiring the father’s [HDFC’s] business,” he remarked.

Providing a backdrop for the move, Mr. Parekh said the regulatory landscape had evolved over the years to the point where regulations for banks and NBFCs had been harmonised, thereby enabling the potential merger. “The resulting larger balance sheet would allow underwriting of large ticket infrastructure loans, accelerate the pace of credit growth in the economy, boost affordable housing and increase the quantum of credit to the priority sector, including credit to the agriculture sector,” he stressed.

“The merger makes the combined entity strong enough to not only counter competition but make the mortgage offering even more competitive. We will be able to offer all the variations in the mortgage product which currently we are unable to offer as a HFC like the OD product,” he said.

The funding challenges, both in quantum and cost, would be minimised by the combined entity, he added. “The merger will therefore capitalise on our domain knowledge in real estate and mortgages and our operational efficiencies in processing mortgages, while leveraging on the cost of funds efficiencies and the distribution network of the bank,” Mr. Parekh said.

Upon the scheme becoming effective, the subsidiaries/associates of HDFC would become subsidiaries/associates of HDFC Bank.All the employees would be retained at HDFC, which would merge into HDFC Bank and turn into its home lending arm.

Post merger, HDFC Bank would be 100% owned by public shareholders and existing shareholders of HDFC would own 41% of the bank.

As at September 30, 2021, the asset size of HDFC Bank was ₹18.44 lakh crore and that of HDFC (consolidated) was ₹8.80 lakh crore.

While HDFC Bank has more than 6,300 banking outlets and more than 17,000 ATMS, HDFC has 651 offices inclusive of 206 outlets of HDFC Sales.

“The proposed transaction ticks all the right boxes in terms of completion of product offerings, product leadership in home loans as with other retail assets products, distribution strength across the country and a customer base that can be leveraged to cross-sell a complete suite of financial products,” said Sashi Jagdishan, CEO & MD, HDFC Bank. “It is value accretive for all the stakeholders of both the organisations, including shareholders, employees and customers,” he added.

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