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MUMBAI: Mortgage financier Housing Development Finance Corporation will merge with its subsidiary HDFC Bank, creating a financial behemoth and putting to rest years of speculation.

HDFC Bank on Monday said its board has approved the amalgamation of HDFC Investments and HDFC Holdings with HDFC and that of HDFC into HDFC Bank.

As part of the transaction, shareholders of HDFC Ltd will receive 42 shares of the bank for 25 shares held. After the completion of the deal, existing shareholders of HDFC Ltd will own 41% of HDFC Bank.

Shares held by the housing finance company in the lender will be extinguished, making HDFC Bank a full-fledged public company. The subsidiaries and associates of HDFC Ltd will shift to HDFC Bank.

"The Board of Directors of HDFC Bank Limited ("HDFC Rank"), at its meeting held today, on April 04, 2022, has inter alia approved a composite scheme of amalgamation ("Scheme") for the amalgamation of: (i) HDFC Investments Limited and HDFC Holdings Limited, into and with Housing Development Finance Corporation Limited ("HDFC Limited"); and (ii) HDFC Limited into HDFC Bank, and their respective shareholders and creditors," said the bank in a stock exchange filing.

The merger is subject to approvals from the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), the Competition Commission of India, the National Housing Bank (NHB), the Insurance Regulatory and Development Authority of India, the Pension Fund Regulatory and Development Authority, the National Company Law Tribunal, stock exchanges and other statutory and regulatory authorities, and the respective shareholders and creditors, under applicable law

Explaining the rationale behind the deal, HDFC bank said the proposed transaction will create a large balance sheet and net-worth, which would also enable underwriting of larger ticket loans, including infrastructure loans. Following the merger, HDFC Bank’s 68 million customers will be offered mortgages as a core product in a seamless manner.

The bank also said HDFC has invested capital and developed skills and has set up 445 offices across the country. These offices can be used to sell the entire product suite of both HDFC and HDFC Bank.

The private sector lender said the current regulatory changes, including higher regulatory standards for non-banking financial companies (NBFCs) at par with banks, reduction in SLR rates, creation and deepening of priority sector lending (PSL) certificates market, have also created a case for merger of the two entities.

“The combined entity will bring together complementary strengths of the two organizations, enabling a rewarding customer relationship. Post the combination, HDFC Bank’s customers will be offered mortgages as a core product in a seamless manner. HDFC Bank will also leverage the long tenor mortgage relationship to offer varied credit and deposit products enabled through better insights through-out the customer life-cycle. This will result in an enhanced value proposition and customer experience for all customers of the combined entity," the bank said.

The proposed transaction will result in reducing HDFC Bank's proportion of exposure to unsecured loan and also in bolstering the capital base.

"HDFC Bank has access to funds at lower costs due to its high level of current and savings accounts deposits (CASA). With the amalgamation of HDFC with HDFC Bank, HDFC Bank will be able to offer more competitive housing products," it said.

Deepak Parekh, chairman of HDFC Ltd said the deal was a merger of equals.

Sashi Jagdishan, CEO and MD of HDFC Bank, said, “The proposed transaction ticks all the right boxes in terms of completion of product offerings, product leadership in home loans as with other retail assets products, distribution strength across the country and a customer base that can be leveraged to cross-sell a complete suite of financial products. It is value accretive for all the stakeholders of both the organisations, including shareholders, employees and customers."

HDFC had total assets worth 6,23,420.03 crore and a net worth of 1,15,400.48 crore as on 31 December 2021. HDFC Bank, on the other hand, had total assets of 19.38 lakh crore, and net worth of 2.23 lakh crore, as on 31 December 2021.


Gopika Gopakumar

Gopika Gopakumar has worked for over 15 years as a banking journalist across print and television media. Her expertise lies in breaking big corporate stories and producing news based TV shows. She was part of the 2013 IMF Journalism Fellowship Program where she covered the Annual & Spring meetings of the International Monetary Fund in Washington D.C. She started her career with CNBC-TV18, where she also produced a news feature show called Indianomics and an award winning show on business stories from South India called Up South. She joined Mint in 2016.
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