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Fair trade regulator Competition Commission of India (CCI) has approved the merger proposal of HDFC Bank and its parent HDFC Ltd.

The proposed combination envisages the merger of HDFC Investments and HDFC Holdings with HDFC Ltd in the first step and subsequently, the merger of HDFC Ltd into HDFC Bank.

In a tweet on Friday, CCI said it has approved the "proposed combination involving amalgamation of HDFC Limited, HDFC Bank, HDFC Investments and HDFC Holdings."

With this merger, the liabilities of HDFC Ltd will be transferred to HDFC Bank.

The Bank said it has not approved any plans to raise funds to pay towards such liabilities of HDFC Ltd.

The RBI had issued a no-objection certificate for the proposed amalgamation of HDFC and HDFC Bank. The Securities and Exchange Board of India (Sebi), too, had given its in-principle approval for a scheme of amalgamation of various HDFC Group entities as a part of the mega-merger.

After the completion of the merger, HDFC Ltd will acquire a 41% stake in HDFC Bank, and all subsidiaries of the housing financier will be owned by the latter. It will take about 12-18 months for the ongoing merger process to be completed.

The parent-subsidiary merger is seen as the biggest transaction in India's corporate history.

In April, the country's largest housing finance company HDFC Ltd announced that it will merge with HDFC Bank.

Deals beyond a certain threshold require approval from the regulator, which keeps a tab on unfair business practices in the marketplace.

The rationale behind the merger

The HDFC Bank, which has more than 68 million customers, and 6,342 branches, is the leading private sector bank in the country at present.

While, HDFC Ltd has unrivalled relationships, scale, and deep underwriting expertise in the housing sector, built over multiple decades.

"The combined entity will bring together complementary strengths of the two organizations. 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 throughout the customer life-cycle," The Bank said.

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