Housing Development Finance Corporation and its subsidiary HDFC Bank will merge, creating a financial behemoth and putting an end to years of conjecture.
On Monday, HDFC Bank announced that its board of directors had authorised the merger of HDFC Investments and HDFC Holdings with HDFC, as well as the consolidation of HDFC into HDFC Bank.
HDFC Ltd shareholders will receive 42 shares of the bank in exchange for their current holdings of 25 shares. Following the transaction’s conclusion, existing shareholders of HDFC Ltd will own 41% of HDFC Bank.
“The Board of Directors of HDFC Bank Limited (“HDFC Rank”), at its meeting held today, on April 04, 2022, has inter alia approved a composite scheme of amalgamation (“Scheme”) for the amalgamation of: (i) HDFC Investments Limited and HDFC Holdings Limited, into and with Housing Development Finance Corporation Limited (“HDFC Limited”); and (ii) HDFC Limited into HDFC Bank, and their respective shareholders and creditors,” said the bank in a stock exchange filing.
“The combined entity will bring together complementary strengths of the two organizations, enabling a rewarding customer relationship. 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 through-out the customer life-cycle. This will result in an enhanced value proposition and customer experience for all customers of the combined entity,” the bank said.
The home financing business’s stake in the institution would be dissolved, transforming HDFC Bank into a fully-fledged public company. HDFC Ltd’s subsidiaries and associates will be merged into HDFC Bank.
The merger is subject to approval by the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the Competition Commission of India, the National Housing Bank (NHB), the Insurance Regulatory and Development Authority of India, the Pension Fund Regulatory and Development Authority, the National Company Law Tribunal, stock exchanges, and other applicable statutory and regulatory authorities, as well as the respective shareholders and creditors.
HDFC bank explained that the planned purchase will result in a huge balance sheet and net worth, which will enable it to underwrite larger ticket loans, including infrastructure loans. Following the merger, HDFC Bank’s 68 million customers would receive seamless access to mortgages as a fundamental product.
Additionally, the bank stated that HDFC has spent resources, cultivated talents, and established 445 offices around the country. These offices can be utilised to market the full range of HDFC and HDFC Bank products.
HDFC had total assets worth ₹6,23,420.03 crore and a net worth of ₹1,15,400.48 crore as on 31 December 2021. HDFC Bank, on the other hand, had total assets of ₹19.38 lakh crore, and net worth of ₹2.23 lakh crore, as on 31 December 2021.
The private sector lender stated that recent regulatory changes, such as bringing non-bank financial companies (NBFCs) on par with banks, lowering SLR rates, and establishing and deepening the market for priority sector lending (PSL) certificates, have also created a case for the two entities to merge.
The proposed transaction will result in a reduction of HDFC Bank’s exposure to unsecured loans and a strengthening of the bank’s capital base.
Bhoi Smrutirekha Dharanidhar