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HDFC Bank, HDFC Ltd announce merger | What this means for customers, shareholders

With the merger of HDFC ltd with HDFC Bank, HDFC Bank will be able to offer more competitive housing products, according to the BSE filing by HDFC.

HDFC Bank, India’s largest private lender, will merge with the country’s largest housing finance company, Housing Development Finance Corporation or HDFC Ltd to create a financial services conglomerate, the companies said on Monday.

“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…,” HDFC Ltd Chairman Deepak Parekh said.

HDFC, HDFC BANK MERGER

  • As part of the deal, shareholders of HDFC Ltd will receive 42 shares of the bank for 25 shares held. Existing shareholders of HDFC Ltd will own 41per cent of HDFC Bank. Shares held by the housing finance company in the lender will be extinguished, making HDFC Bank a full-fledged public company.
  • The subsidiaries and associates of HDFC Ltd will shift to HDFC Bank, the companies said in a regulatory filing.
  • Transaction completion is subject to shareholders, creditors and regulatory approvals including from the Reserve Bank of India (RBI), the Insurance Regulatory and Development Authority (IRDAI), Competition Commission of India (CCI), market regulator Securities and Exchange Board of India (SEBI) and the Stock Exchange.
  • Closing is expected to be achieved within less than 18 months, subject to completion of regulatory approvals and other customary closing conditions, HDFC Bank and HDFC Ltd said in a statement.
  • There will be a combined customer base of HDFC Bank and HDFC Ltd with a plethora of financial products – mortgages, savings accounts, life insurance, general insurance, health insurance, investment products, credit cards, and personal loans.

HOME LOAN

With the merger of the Corporation with HDFC Bank, HDFC Bank will be able to offer more competitive housing products, according to the BSE filing by HDFC.

The Corporation’s rural housing network and affordable housing lending are likely to qualify for HDFC Bank as priority sector lending. The merger will also enable a higher flow of credit into priority sector lending, including agriculture.

HDFC Bank can leverage the loan management system, comprising rule engines, IT tools, and rules, and agents connected through a central system.

HDFC Limited is a significant provider of home loans to the Low Income Group (LIG) and Middle Income Group (MIG) segments under the affordable housing initiatives of the Government of India. Access to housing finance for this category would be improved further on account of the low-cost funds available by HDFC Bank.

HDFC Bank has a presence in more than 3,000 cities or towns through its 6,342 branches, with about 50 percent of these branches in semi-urban or rural areas in the country.

Leveraging this distribution might, the proposed transaction would broad-base the home loan offering, synonymous with the national objective of Pradhan Mantri Awas Yojana that intends to provide housing for all, the companies said.