Deal to create financial giant with assets exceeding 27.24 lakh Cr.
Deal to create financial giant with assets exceeding 27.24 lakh Cr.
The mortgage bank HDFC Ltd. and India’s largest private bank HDFC Bank Ltd. announced on Monday that their respective boards had approved a stock-only merger, in which the latter’s parent company would merge with the bank to create a financial giant with combined assets of approximately ₹27.24 lakh crore (as of September 2021) .
Shareholders of HDFC would receive 42 shares in HDFC Bank (each with a par value of £1) for 25 shares in the Mortgage Lender (each with a par value of ₹2), and the share(s) held by HDFC in HDFC Bank would have gone out according to plan.
The proposed merger is subject to regulatory approvals, including RBI and IRDA, and would take around 12 to 18 months to complete, top executives at both companies said at a news conference.
HDFC chairman Deepak Parekh said he will not sit on the bank’s board after the merger as he is already over 75 years old.
Major home finance vice chairman and CEO Keki Mistry, who is 67, would join the bank’s board and be there for about a year and a half, likely overseeing the mortgage division and investor relations, he added.
“We will not be kicked out as this is not an enemy merger,” Mr Parekh said. “The son [HDFC Bank] has grown older and acquires that of the father [HDFC’s] business,” he noted.
As a backdrop to 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, making possible the potential merger. “The resulting larger balance sheet would enable the underwriting of large infrastructure loans, accelerate credit growth in the economy, promote affordable housing and increase lending to the priority sector, including loans to the agricultural sector,” he said.
“The merger makes the combined company strong enough not only to counteract competition, but to make the mortgage offering even more competitive. We will be able to offer all variations of the mortgage product that we cannot currently offer as an HFC like the OD product,” he said.
Funding challenges, both in quantity and in cost, would be minimized by the combined entity, he added. “The merger will therefore benefit from our real estate and mortgage expertise and operational efficiencies in processing mortgages, while leveraging the bank’s cost of capital efficiencies and distribution network,” said Mr. Parekh.
Upon the Scheme becoming effective, the subsidiaries/shareholders of HDFC would become subsidiaries/shareholders of HDFC Bank. All employees would remain with HDFC, which would merge with HDFC Bank and become its home loan arm.
After the merger, HDFC Bank would be 100% owned by public shareholders and existing shareholders of HDFC would own 41% of the bank.
As of 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 bank branches and more than 17,000 ATMs, HDFC has 651 offices including 206 branches of HDFC Sales.
“The proposed transaction has all the elements of product offering completeness, product leadership in home loan as well as other retail investor products, distribution strength across the country and a customer base that can be leveraged to cross-sell a full suite of financial products” said Sashi Jagdishan, CEO & MD, HDFC Bank. “It adds value for all stakeholders of both organizations, including shareholders, employees and customers,” he added.
