HDFC Bank Of India Will Merge With Finance Firm HDFC Ltd
The largest housing finance company in India – HDFC Ltd, is set to be merged with the largest private bank in the country HDFC Bank, the two companies announced on Monday. The resultant merged entity is set to become one of the largest financial services conglomerates of India.
The announcement by the company propped up the shares of the company significantly.
According to the merger deal arrived at by the two companies, HDFC Ltd shareholders will be given 42 shares of the bank for 25 shares that are held by them. Consequently, about 41% of HDFC Bank would be owned by the current shareholders of HDFC Ltd.
HDFC Bank will become a fully publicly listed company following the complete cancellation of the stocks of the home finance in the lender.
Following the announcement, HDFC Bank’s stock soared by as much as 10%, while HDFC Ltd stock soared by as much as 13%.
According to analysts, the merger of the two companies could be the result of the Reserve Bank of India’s suggestion made in November of 2020 that well-run major shadow lenders with assets of more than 500 billion rupees are to be evaluated for conversion into banks.
“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…,” HDFC Ltd Chairman Deepak Parekh said.
HDFC Bank had a market value of 8.34 trillion rupees ($110.06 billion) as of Friday’s end, while HDFC Ltd had a market value of 4.44 trillion rupees ($58.59 billion).
“This is a long-awaited merger and will be beneficial for both the companies but particularly more for HDFC Ltd that was competing with the likes of State Bank of India (SBI.NS) in a competitive home loan market, leading to pressure on margins due to disadvantages to its cost of funds,” said Asutosh Mishra, research analyst at Ashika Stock Broking.
“Now the combined entity will have the same cost structure as other banks, which will allow them to compete better with their peers.”
HDFC Ltd’s subsidiaries and associates would be transferred to HDFC Bank, according to a regulatory filing.