Indian bank HDFC Bank to merge with mortgage lender HDFC Ltd

  • HDFC Ltd shareholders will get 42 HDFC Bank shares for every 25 shares held
  • The combined company will have a balance sheet of $237 billion
  • HDFC Bank shares up 14.4%, HDFC Ltd jumps 19.6%

BENGALURU, April 4 (Reuters) – India’s biggest private lender HDFC Bank (HDBK.NS) will merge with its largest shareholder, creating a financial services conglomerate with a balance sheet of $237 billion to better tap into credit demand in a economy rebounding from pandemic.

HDFC Bank’s deal with housing finance company HDFC Ltd (HDFC.NS), which owns around 21% of the lender, will build on its 68 million customers and could propel the combined entity to become the second company India’s most valuable listed company.

Under the agreement announced by the two companies on Monday, shareholders of HDFC Ltd will receive 42 shares in the bank for every 25 shares held. Existing HDFC Ltd shareholders will own 41% of HDFC Bank, the combined entity, which will become a fully-fledged public company, with the housing finance company’s stake in the lender canceled as part of the deal.

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Shares of HDFC Bank jumped 14.4%, while HDFC Ltd jumped 19.6% after the announcement.

“The merger will provide more synergies between the two lenders and allow them to leverage the balance sheet of the combined entities and increase product cross-selling and aid in expansion,” said Karthik Srinivasan, analyst at ICRA.

“In addition, there are other advantages for a bank, such as a lower cost of funds, which the merged entity can now take advantage of.”

As of Friday’s close, HDFC Bank had a market value of 8.34 trillion rupees ($110.06 billion), while HDFC Ltd was worth 4.44 trillion rupees ($58.59 billion).

“During the past few years, various regulations applicable to banks and NBFCs have been harmonized, thus enabling eventual merger,” HDFC Ltd Chairman Deepak Parekh said, referring to shadow lenders also known as Non-Banking Financial Companies (NBFCs). ) in India.

The Reserve Bank of India issued guidelines in November 2021 that allow large, well-run shadow lenders with an asset size of over Rs 500 billion to be converted into banks.

“The resulting larger balance sheet would allow for the underwriting of large infrastructure loans, accelerate the pace of credit growth in the economy, stimulate affordable housing and increase the amount of credit to the priority sector…” Parekh said.

The companies expect the deal to close in the second or third fiscal quarters beginning in April 2023.

“This is a long overdue merger and will be beneficial for both companies but especially for HDFC Ltd which was competing with companies like State Bank of India (SBI.NS) in a competitive home loan market. , leading to pressure on margins due to the drawbacks of its funding cost,” said Asutosh Mishra, Research Analyst at Ashika Stock Broking.

“From now on, the combined entity will have the same cost structure as other banks, which will allow them to better compete with their peers.”

($1 = 75.6950 Indian rupees)

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Reporting by Chris Thomas in Bengaluru; Editing by Arun Koyyur and Muralikumar Anantharaman

Our standards: The Thomson Reuters Trust Principles.

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