Merger of HDFC Limited and HDFC Bank

April 5, 2022

HDFC’s board of directors has approved the merger of HDFC Bank, India’s largest private sector bank with HDFC (Housing Development Finance Corporation), India’s largest housing finance firm.

Overview:

The deal will be building the housing loan portfolio of the bank and will also be enhancing its existing customer base.
Under the agreement that has been proposed, public shareholders will be 100 percent owning HDFC Bank, and HDFC Limited’s existing shareholders will own 41 percent stake in HDFC Bank.
As per the share exchange ratio, for every 25 equity shares that are held by the shareholders of HDFC, they will be receiving 42 equity shares of the combined company.
After the announcement of the agreement, HDFC Bank shares rose by 14 percent, and the share price of HDFC rose by more than 16 percent on BSE Sensex and NSE Nifty.

Why was this agreement done?

The proposed agreement will be creating a large net worth as well as a balance sheet that would allow a greater credit flow into the economy. Also, underwriting of larger ticket loans such as infrastructure loans will be enabled due to this agreement.

About the merger

This will be a two-part merger. In the first step, HDFC Holdings Limited and HDFC Investments Limited will be merging with HDFC Limited. In the next step, HDFC Limited will be amalgamated with HDFC Bank. After merging, the total assets of HDFC Bank and HDFC Ltd will be more than Rs 25 lakh crore. The turnover of HDFC is Rs 35,681.74 crore while for HDFC Bank it is Rs 1.16 lakh crore.

Conclusion

The deal will be completed in 18 months after getting approval from the Reserve Bank of India (RBI), the Competition Commission of India, the Securities and Exchange Board of India (SEBI), and the National Housing Bank.

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