India's largest housing finance corporation, the Housing Development and Finance Corporation (HDFC Limited), will merge into India's largest private sector bank by assets, HDFC Bank, the latter announced on Monday.
More specifically, HDFC Holdings and HDFC Investments will merge into HDFC, and HDFC will merge into HDFC Bank
HDFC owns a limited shareholding in HDFC Bank, which will be extinguished upon completion of the the merger. Shareholders of HDFC will get 42 shares of HDFC Bank for every 25 shares they own. Post the merger, 100% of HDFC Bank will be publicly owned, with 41% being owned by existing HDFC shareholders.
The bank says that the merger offers perfect synergy to its growing mortgage book, which according to data provided by it shows a CAGR of 24.5% from FY2009 - where the mortagage loan book was around ₹5,069 crores - to FY2021 where it is ₹70,220 crores.
Post the merger, HDFC Bank also expects its loan book mix to change drastically. Right now, its single largest component is commercial and rural banking, with 35% of its book, followed by retail at 28% of its book, corporate banking with 26% and mortgages 11%. Pro forma, mortgages will be the largest contributor to the loan book at nearly a third, followed by commercial and rural at 24% and retail at 21%.
The merger will also permit larger cross-selling of products like insurance products, credit cards and personal loans to the combined consumer base of HDFC and HDFC Bank. It will also help push the entity's business into rural and semi-rural locations.
Any subsidiaries of HDFC will become subsidiaries of HDFC Bank.
The merger is expected to complete within 18 months: by the second or third quarter of financial year 2024, pending regulatory approvals by authorities like the Reserve Bank of India, Securities and Exchange Board of India and the Competition Commission of India.
The merger announcement can be seen here.
HDFC Bank's competitor, ICICI Bank, the second largest private bank by assets, too underwent a similar merger, when ICICI - a development finance institution - and two of its subsidiaries were merged into the bank in 2002.
The share price of HDFC Bank are up 9% at ₹1638, while that of HDFC is up 11.67% at ₹2,738 on the National Stock Exchange.