One of the biggest mergers in Indian Corporate history, the largest mortgage lender in India, HDFC announced that its board has approved the merger with HDFC Bank and cleared a $40 billion amalgamation of the parent housing finance company with its banking arm.
HDFC chairman Deepak Parekh announced that the shareholders of HDFC will get 42 shares of HDFC Bank for every 25 shares held. According to Refinitiv Data, it will mark the largest banking sector M and A globally since April 2007. S and P Global Ratings said the deal would create an entity twice the size of ICICI Bank.
HDFC Limited with Assets Under Management (AUM) worth Rs 5.26 trillion and a market cap of Rs 4.44 trillion will merge with HDFC Bank with a market cap of Rs 8.35 trillion.
Plan of Merger
The subsidiaries or associates of HDFC Limited will be transferred to HDFC Bank. Although HDFC Limited and HDFC Bank will operate as separate entities until the merger takes effect, 12-18 months from now.
HDFC shareholders will get 42 shares of HDFC Bank for every 25 shares held. HDFC Limited's shareholding in HDFC Bank will be annihilated and HDFC Bank will be 100 per cent owned by public shareholders.
Benefit of Merger
This merger will not only improve the ability to cross-sell products to a larger customer base but will also help both the entities to leverage their distribution across urban, semi-urban and rural geographies. It will enable larger underwriting at scale with the combined balance sheet of Rs 17.87 trillion and Rs 3.3 trillion of net worth.
This merger involves the amalgamation of HDFC and its owned subsidiaries HDFC Holdings and HDFC Investments with HDFC Bank. HDFC Limited with its two subsidiaries holds approximately 21% of the share capital of the bank. Post the completion of the procedure of this merger, subsidiaries and associate companies of HDFC Limited will be owned by HDFC Bank.
Today how we experience banking services is way different than what it was a decade ago. The Unified Payment Interface has revolutionized the payment system. As the two HDFCs have started their dance, they must be careful of not only the banks but also the fintech companies that are growing at a faster pace in both the areas of lending and borrowing.
