The HDFC and HDFC Bank merger deal is valued at around $40 billion. (File)
The merger of housing finance major HDFC with HDFC Bank, the country's biggest private lender, will come into effect on July 1, according to HDFC Chairman Deepak Parekh. It is the biggest transaction in the corporate history of India which will create a financial services titan.
Why the merger?
The merger deal of HDFC Bank and HDFC was announced on April 4 last year. According to the lender, the transaction was proposed to “create a large balance sheet and net worth that would allow greater flow of credit into the economy”. The bank said that the merger will also enable it to underwrite larger ticket loans, including infrastructure loans.
HDFC Limited offers home loans to the Low Income Group (LIG) and Middle Income Group (MIG) segments under the affordable housing initiatives of the government. “Access to housing finance for this category would be improved further on account of low-cost funds available with HDFC Bank,” the bank said.
After the merger
Under the merger deal, which will be effective from next month, HDFC Bank will be entirely owned by public shareholders and the existing shareholders of HDFC will own 41 percent of the lender. Under the 25:42 swap ratio, every shareholder of HDFC will receive 42 shares of HDFC Bank for every 25 shares they own.
The HDFC and HDFC Bank merger deal is valued at around $40 billion. Once it becomes effective, the combined asset base of the entity will be around Rs 18 lakh crore.
Likely benefits of the deal
HDFC Bank will be able to make use of around 445 offices of HDFC across the country to cross-sell its banking products. The bank, which has a customer base of over 68 million, will also offer more competitive housing loans and provide a diversified low-cost funding base.
With a large balance sheet after the merger, HDFC Bank will become the second largest bank in the country after the state Bank of India (SBI).