Home / Companies / News /  HDFC Bank merger to create entity twice the size of ICICI Bank: S&P

S&P Global Ratings on Monday said the HDFC Bank's planned merger with it parent HDFC Ltd will boost the Bank's share and also diversify its revenue.

In one of the biggest M&A deals this year, HDFC Ltd, India’s biggest mortgage lender, agreed to merge with country’s most valuable banks HDFC Bank to create an almost $190-billion behemoth to ride a boom in home loans and consumer spending in the world’s fastest-growing major economy.

The combined market capitalisation of HDFC Bank and HDFC soared to 14.22 lakh crore on Monday after the deal announcement, surpassing the IT giant TCS which has a market cap over 13 lakh crore.

HDFC twins, as they are popularly known, are key drivers of the Nifty index apart from other conglomerates like Reliance and TCS.

HDFC, which issues mortgages to more than half the home buyers in a country of 1.4 billion people, will hold 41% of HDFC Bank Ltd., a bank it helped found 28 years ago.

The merger will likely result in significant market-share gains for HDFC Bank, given HDFC Ltd is the largest financier of mortgages in India, S&P said in a report that does not constitute as a rating action.

HDFC Bank's are likely to be raised by 42%, increasing the Bank's market share to about 15% from the 11% currently, S&P said, adding that HDFC Bank will remain the second-largest bank in India post the merger, however it will be twice the size of ICICI Bank.

According to the deal terms, once the deal is complete, HDFC Bank will be 100% owned by public shareholders and HDFC shareholders will get 42 shares of HDFC Bank for 25 shares held.

The merger is expected to be completed by third quarter of financial year 2023-2024. HDFC Bank’s CEO Sashidhar Jagdishan will head the merged entity.

"HDFC Bank's business profile will diversify after the merger, and the combined entity will have one-third of its portfolio in mortgage loans, compared to 11% reported now," it said.

"The merger will provide the bank with profitable cross-selling opportunities to HDFC Ltd's large pool of customers, especially for high-yield products such as unsecure loans. It would also generate more fee income from insurance and investment products," S&P Global added.

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