HDFC Bank And HDFC: A Gigantic Merger
By A Special Correspondent
First publised on 2022-04-05 07:24:58
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HDFC will merge with HDFC Bank in the biggest M&A deal in India, valued at $40bn. HDFC shareholders will get 42 shares in the merged entity for every 25 shares they hold. Post merger, HDFC bank will be held 100% by the public and HDFC shareholders will hold 42% of the merged entity. In terms of market capitalization, the merged entity will become India's second largest company after Reliance with a value of Rs 1422652cr, overtaking TCS (as per share pricing on 5th April, 2022, the day the merger was announced).
HDFC has total assets of Rs 623420.03cr and net worth of Rs 115400.48cr while HDFC Bank has total assets of Rs 1938285.95cr, and a net worth of Rs 223394.00cr, as on December 31, 2021. HDFC chairman Deepak Parekh said that "the proposed merger will benefit the economy in many ways. A larger balance sheet and a larger capital base will allow a greater flow of credit into the economy".
But it is not only about size. There are a lot of synergies in the operation of the two companies and both, including all stakeholders, will benefit from the merger. HDFC's mortgage business will get access to cheaper funds and will be able to provide overdraft loans which it could not as a NBFC. HDFC Bank will get a huge set of customers for deposits and cross-selling apart from getting a longer-range asset base. Both have presence in every nook and corner of the country and will complement each other perfectly.
The RBI has always wanted large NBFCs to turn into banks as that would enable it to regulate then better by applying banking norms, which are stricter. For the NBFCs it is also better to have both lending and borrowing under the same roof. It affords a greater degree of flexibility. Hence, the merger of HDFC with HDFC Bank is a win-win situation.
