HDFC, HDFC Investments and HDFC Holdings To Merge with HDFC Bank
Moneylife Digital Team 04 April 2022
India's largest housing finance company, HDFC Ltd has decided to merge with HDFC Bank Ltd, the country's largest private sector bank. In a statement, HDFC says, "The proposed transaction is to create a large balance sheet and net-worth that would allow a greater flow of credit into the economy. It will also enable underwriting of larger ticket loans, including infrastructure loans— an urgent need of the country."
The board of directors of both HDFC and HDFC Bank have approved a composite scheme of amalgamation for the merger of HDFC Investments Ltd and HDFC Holdings Ltd, with and into HDFC and HDFC with and into HDFC Bank.
Upon the merger scheme, subsidiaries and associates of HDFC will become subsidiaries and associates of HDFC Bank. Shareholders of HDFC as on the record date will receive 42 shares of HDFC Bank, each with a face value of Re1, for 25 shares held in HDFC, each of face value of Rs2, and the shares held by HDFC in HDFC Bank will be extinguished. As a result of this, upon the scheme becoming effective, HDFC Bank will be 100% owned by public shareholders and existing shareholders of HDFC will own 41% of HDFC Bank.
Speaking about the merger, Deepak Parekh, chairman of HDFC, says, "This is a merger of equals. We believe that the housing finance business is poised to grow in leaps and bounds due to the implementation of the Real Estate Regulatory Authority (RERA), the infrastructure status to the housing sector, and government initiatives like affordable housing for all, among others. Over the last few years, various regulations for banks and non-banking financial companies (NBFCs) have been harmonised, thereby enabling the potential merger. Further, the resulting larger balance sheet would allow underwriting of large ticket infrastructure loans, accelerate the pace of credit growth in the economy, boost affordable housing and increase the quantum of credit to the priority sector, including credit to the agriculture sector."
"After 45 glorious years of providing home loans to over nine million customers, the time is right for HDFC to find a new home. Our new home is with our family, with our own people, but it is bigger, better and significantly more promising," Mr Parekh added.
According to the joint statement, the boards of HDFC and HDFC Bank believe that the merger will create long-term value for all stakeholders, including customers, employees, and shareholders. The amalgamation of the two entities will provide further impetus to the government's vision of 'housing for all', it added.
"The housing loan market is at the cusp of a strong up-cycle, with all-time high favourable industry dynamics and provides a steady secured asset class with very attractive risk-adjusted returns. Over the last few years, regulatory developments and reforms including, higher regulatory standards for NBFCs narrowing the gap with the banking regulatory framework, reduction in statutory liquidity ratio (SLR) rates, deepening of affordable housing bond market and creation and deepening of priority sector lending (PSL) certificates market, have created a conducive environment for amalgamation of the two entities, leading to a 'win-win' situation for all stakeholders," the statement says.
Mr Parekh, the chairman of HDFC, says, "In the past, the merger would not have been as value accretive as at present. The proposed merger of HDFC with HDFC Bank will lead to significant synergies for the combined entity and to better returns for all stakeholders. The combined strength of the balance sheet of the combined entity, the ability to be competitive on the funding side and the ability to offer the entire range of mortgage products makes it a win-win for both institutions."
"The merger will therefore capitalise on our domain knowledge in real estate and mortgages and our operational efficiencies in processing mortgages, whilst leveraging on the cost of funds efficiencies and the distribution network of the bank. The merger is a coming together of equals. Our customers will be the biggest beneficiary," he added.
According to the release, the combined entity will bring together the two organisations' complementary strengths, enabling a rewarding customer relationship. "Post the combination, HDFC Bank's customers will be offered mortgages as a core product seamlessly. HDFC Bank will also leverage the long tenor mortgage relationship to offer varied credit and deposit products enabled through better insights throughout the customer life-cycle. This will result in an enhanced value proposition and customer experience for all customers of the combined entity," it added.
Atanu Chakraborty, chairman HDFC Bank, feels the product and market leadership of HDFC in the housing finance business and the distribution and customer leadership of HDFC Bank will enable the combined entity to offer full suite of financial products to Indians at large and the proposed transaction is a big step in realising the vision of housing for all as envisioned by our government.
"It is a step in the right direction, taken at the right time, for value creation for all the stakeholders," says Keki M Mistry, vice-chairman and chief executive officer (CEO) of HDFC. "With the leadership that we have built-in housing finance and the deep understanding of the housing market across various economic cycles, this transaction helps in realising the potential of what HDFC's housing finance business can achieve by leveraging the distribution and customer base of HDFC Bank. It is a step in the right direction, taken at the right time, for value creation for all the stakeholders."
HDFC is India's premier housing finance company and has unrivalled relationships, scale and deep underwriting expertise in the housing sector, built over multiple decades and across economic cycles. HDFC Bank, with more than 68 million customers, 6,342 branches and a full suite of credit, liability and distribution offerings, is the leading private sector bank with deep relationships, insights and understanding of its customers built over multiple decades.
"The proposed transaction ticks all the right boxes in terms of completion of product offerings, product leadership in home loans as with other retail assets products, distribution strength across the country and a customer base that can be leveraged to cross-sell a complete suite of financial products. It is value accretive for all the stakeholders of both the organisations, including shareholders, employees and customers," says Sashi Jagdishan, CEO & MD of HDFC Bank.
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