HDFC, HDFC Bank to merge in $40 bn deal
01 Jul 2023
In what would be the biggest financial sector merger in India, HDFC Bank will take over the biggest domestic mortgage lender, HDFC Ltd, in a deal valued at about $40 billion (Rs328 lakh crore), creating a banking sector behemoth.
The merger of housing finance major HDFC with the country's largest private sector lender, HDFC Bank, will take effect from 1 July, HDFC chairman Deepak Parekh said on Tuesday.
The boards of HDFC and its sister bank will meet on 30 June to clear and approve the merger, Parekh told reporters in Mumbai.
HDFC vice-chairman and CEO Keki Mistry said the stock of the housing finance major will be delisted from the stock exchange effective 13 July.
At current market price, the merged HDFC Bank will be worth $175 billion, making it the fifth most valuable bank in the world. The amalgamated entity will also have a combined asset base of around Rs18 lakh crore.
The scheme would enable the amalgamated company to build its housing loan portfolio and enhance its existing customer base.
Considering the significant complementarities that exist between the two entities, the amalgamation would create meaningful value for various stakeholders, including respective shareholders, customers, employees, as the combined business would benefit from increased scale, comprehensive product offering, balance sheet resiliency and the ability to drive synergies across revenue opportunities, operating efficiencies and underwriting efficiencies, amongst others, says a stock market filing.
The amalgamated company would be the country’s largest private sector bank with a customer base of over 68 million. The bank platform will provide a well-diversified low cost funding base for growing the acquired long tenor loan book, says the lender.
HDFC Bank has a large distribution network that offers product offerings in the retail and wholesale segments. The amalgamated company, besides providing retail loans to individuals as well as loans to corporates, would undertake lease rental discounting and construction finance apart from being a financial conglomerate.
The amalgamated company would benefit from a larger balance sheet and net worth which would allow underwriting of larger ticket loans and also enable a greater flow of credit into the economy.
Once the merger takes effect, HDFC Bank will be 100 per cent owned by public shareholders, and existing shareholders of HDFC will own 41 per cent of the bank.
Every HDFC shareholder will get 42 shares of HDFC Bank for every 25 shares they hold.
HDFC Ltd reported profit before tax of Rs5,398 crore for the quarter ended 31 March 2023 against Rs4,622 crore in the corresponding quarter of the previous year.
After providing Rs973 crore for tax, the reported profit after tax stood at Rs4,425 crore compared to Rs3,700 crore in the corresponding quarter of the previous year, representing a growth of 20 per cent.
HDFC Bank had reported a net profit of Rs12,047.5 crore for the quarter ended 3`1 March 2023 against a net profit of Rs10,055.2 crore for the quarter ended 31 March 2022.
Total deposits of the bank for Q4 2023 stood at Rs1,883,395 crore against Rs1,559,217 crore for the quarter ended 31 March 2022.
The bank's balance sheet for the quarter ended 31 March 2023 increased to Rs2,468,081 crore from Rs2,068,535 crore in the quarter ended 31 March 2022.
Reserve Bank of India, market regulator Securities and Exchange Board of India (Sebi), Pension Fund Regulatory and Development Authority, Competition Commission of India and the National Company Law Tribunal as well as the stock exchanges have already cleared the merger proposal.
The amalgamation is subject to receipt inter alia of final approvals from Sebi in respect of change in control of certain subsidiaries of HDFC Limited.