HDFC Limited and HDFC Bank announced their ‘transformational’ merger today to create India’s largest private sector bank with total advances of over ₹17 lakh crores (US$226bn).
Background:
| HDFC Ltd | HDFC Bank |
Primary line of business | Deposit taking housing finance company registered with the NHB | Banking company licensed by the RBI |
Total Assets | 6.23 lakh crores (US$83bn) | 19.38 lakh crores (US$258bn) |
Revenues | 0.35 lakh crores (US$4.6bn) | 1.16 lakh crores (US$15.4bn) |
Net worth | 1.15 lakh crores (US$15.3bn) | 2.23 lakh crores (US$29.7bn) |
Structure:
a. Shareholders of HDFC Limited will receive 42 equity shares (fully paid-up) of HDFC Bank for every 25 fully paid-up shares held by them
b. HDFC Limited (along with its two wholly-owned subsidiaries viz. HDFC Investments Limited and HDFC Holdings Limited) currently holds a ~21% stake in HDFC Bank
c. Upon the consummation of the transaction, the equity shares held by HDFC Limited in HDFC Bank will be extinguished
d. Post the completion, HDFC Bank will be 100% owned by public shareholders and existing shareholders of HDFC Limited will own 41% of HDFC Bank
Rationale:
a. Enable HDFC Bank to build its housing loan portfolio
b. Provide a well-diversified, low-cost funding base to grow the long tenor loan book
c. Create a more robust balance sheet and net worth to enable them to underwrite larger ticket loans
d. Ability to cross-sell to a large and growing customer base
e. Leverage the power of distribution in urban, semi-urban and rural geographies
| HDFC Bank | HDFC Ltd | Pro Forma |
Profit After Tax (INR Cr.) | 35,875 | 13,388 | 49,263 |
EPS (INR/share) | c. 65 | c.74 | c.67 |
Net Worth (INR Cr.) | 229,640 | 115,400 | 330,768 |
Advances (INR Cr.) | 12.6 lakh crores | 5.25 lakh crores | 17,86,669 |
Capital Adequacy Ratio (%) | 19.5% | 22.4 | 19.8% |
Speaking about the merger, Mr. Deepak Parekh, Chairman HDFC Limited, said, “This is a merger of equals……. Over the last few years, various regulations for banks and 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.”
Speaking about the merger, Sashi Jagdishan, CEO & MD, HDFC Bank said “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.
This merger is definitely bound to create a much stronger and a resilient financial institution. On the backdrop of Axis Bank’s acquisition of Citi’s India businesses, these transactions are expected to instil greater confidence in the Indian banking industry.
