HDFC Bank’s growth strategy to focus on home loans post merger with HDFC Ltd

HDFC Bank Ltd, India's largest private lender, intends to prioritize home loans as a central part of its growth strategy after the completion of its merger with HDFC Ltd, according to two senior officials at the group.

The officials told Reuters news agency that the pace of growth in home loans will broadly mirror growth seen in HDFC's home loan portfolio.

According to its investor presentation,individual home loans have grown at a compounded annual rate of 16% in the last five years,

The home loan segment has seen a boost since the pandemic and is seen as a steady growth business with low delinquencies.

"We perceive home loans as secured, long-lasting products that can generate steady deposits and stimulate lending in various home-related personal loan categories," an official stated.

While the share of the portfolio will oscillate based on growth in other segments, the group is comfortable with it staying at current levels, the official told the news agency.

The official added, "We see home loans as a secured sticky product which can generate sticky deposits and spur lending into a number of home-related personal loan categories."

The merger between HDFC Bank and HDFC Ltd, announced in April the previous year and set to conclude in early July, will result in the transfer of HDFC's ₹7.2 trillion ($87.32 billion) portfolio to the bank. This transfer will account for approximately 30% of the bank's overall loan book, including individual housing loans worth 6.02 trillion rupees.

While the housing loan business will not operate as a separate vertical, HDFC Bank's front-line staff will continue to drive growth in this product category while also expanding their offerings in other retail loan segments, as indicated by the second official. Additionally, credit decisions for home loans will be integrated into the bank's broader credit department.

As part of the merger, HDFC's subsidiaries will be transferred to HDFC Bank. The bank plans to increase its stake in the life insurance business from 48.7% to over 50% and in the general insurance segment from 49.9% to over 50%. These transactions are expected to be completed before the merger and may involve open market transactions or bilateral deals.

Furthermore, the Reserve Bank of India has mandated HDFC to sell a majority stake in its education loan arm, Credila Financial Services, which is valued at approximately $1.2 billion to $1.5 billion, due to business overlap with the bank. Although this transaction will not conclude before the merger, advanced negotiations are currently underway, according to the second official.

HDB Financial, HDFC Bank's non-bank lending arm, will continue to operate as a separate entity and is anticipated to be listed before 2025, according to the first official.

Following the merger, it is estimated that foreign shareholding in the combined entity will range from 60% to 62%, paving the way for potential inclusion in the MSCI index for the first time since 2013. This inclusion could attract foreign investments into the bank

( With inputs from Reuters)