HDFC-HDFC Bank Merger Proposal Receives Go-Ahead From BSE, NSE; What Happens Next?

HDFC Bank-HDFC Merger: HDFC Bank and parent HDFC inched closer to the merger process as stock exchanges give thumbs up to their amalgamation scheme. HDFC Bank has received an observation letter with ‘no adverse observations’ from BSE and an observation letter with ‘no objection’ from the National Stock Exchange of India, both dated July 02, 2022, in relation to the proposed composite scheme of amalgamation for the amalgamation of: (i) HDFC Investments and HDFC Holdings, wholly-owned subsidiaries of Housing Development Finance Corporation (HDFC), with and into HDFC and (ii) HDFC with and into HDFC Bank.

In their separate regulatory filing, HDFC Bank and HDFC said, “The Scheme remains subject to various statutory and regulatory approvals inter alia including approvals from the Competition Commission of India, Reserve Bank of India, the National Company Law Tribunal, and the respective shareholders and creditors of the companies involved in the Scheme, as may be required.”

On April 4, HDFC Bank announced that parent HDFC will merge with the bank to enable seamless delivery of home loans and leverage on the large base of over 68 million customers of HDFC Bank and inter alia improve the pace of credit growth in the economy.

After the merger with HDFC, HDFC Bank will become one of the largest banks in the world. This deal is worth about Rs 4.53 lakh crore, which is the second-largest business deal so far in 2022 this year. On completion of this deal, after the merger, the market cap of the bank can reach closer to Rs 15.12 lakh crore. This merger of HDFC and HDFC Bank is expected to be completed by the second or third quarter of the fiscal year 2024.

What Happens Next?

After the merger, HDFC Bank will be 100 per cent owned by public shareholders, while existing shareholders of HDFC will own 41 per cent of HDFC Bank. The subsidiaries and associates of HDFC will shift to HDFC Bank.

This means that HDFC will acquire a 41 per cent stake in HDFC Bank through the transformational merger. Every 25 shares held by HDFC shareholders will fetch them 42 shares of the bank. The merger created an entity that will have a market cap of Rs 12.8 lakh crore and a balance sheet of Rs 17.9 lakh crore.

HDFC Chairman Deepak Parekh, while announcing the plan, had called it a “merger of equals” and attributed tight RBI regulations on non-banking finance companies (NBFCs) as a major reason for the merger.

Post the merger, there will be a combined customer base of HDFC Bank and HDFC and they will be offered a number of financial products—savings accounts, mortgages or home loans, life insurance, general insurance, health insurance, credit cards, investment products and personal loans.

HDFC and HDFC Bank merger has been in the news for a while. In fact, back in 2015, Parekh had said his firm could consider a merger with HDFC Bank provided circumstances were in favour.

With the parent finally giving the go-ahead for the merger, the resultant entity is expected to emerge as a powerhouse in the Indian banking industry.