HDFC Ltd to merge with HDFC Bank, shares soar 10%

HDFC announced a merger with HDFC Bank today, with a share merger ratio of 42 shares of HDFC Bank to 25 shares of HDFC. HDFC Bank will be able to expand its home loan portfolio and expand its existing customer base as a result of the proposed deal.

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Following the proposed merger, HDFC will hold a 41% stake in the merged entity. The merger is subject to clearance from the RBI and other regulatory bodies. HDFC has overall assets of Rs 6.23 lakh crore as of today, whereas HDFC Bank has assets worth Rs 19.38 lakh crore.

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As per an exchange filing, the proposed transaction will help leverage and create meaningful value for various stakeholders. It is also expected to benefit from increased scale, comprehensive product offering, balance sheet resiliency and the ability to drive synergies across revenue opportunities, operating efficiencies and underwriting efficiencies.

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HDFC Bank has a big customer base of 6.8 crore and a well-diversified low-cost financing source to help develop the long-term loan book. In a regulatory filing, HDFC stated, “A combination of the Corporation and HDFC Bank is entirely complementary to, and enhances the value proposition of HDFC Bank”.

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“HDFC Bank would benefit from a larger balance sheet and net worth which would allow underwriting of larger ticket loans and also enable a greater flow of credit into the Indian economy.”

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In intraday trade today, HDFC and HDFC Bank shares rose 10% to Rs 2,696 and Rs 1,656.90 on the BSE, respectively. At 09:20 a.m., HDFC was trading 7% higher at Rs 2,625 and HDFC Bank was trading 6% higher at Rs 1,598. In comparison, the S&P BSE Sensex rose 1.2% to 59,972.

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In FY22, HDFC Bank’s loan book increased by roughly 20.9% year on year (YoY) to Rs 13.69 trillion. As of March 31, 2021, the outstanding loan book was at Rs 11.32 trillion. The bank informed the BSE that the rise in advances was over 8.6% over Rs 12.60 trillion as of December 31, 2021.