HDFC Bank and HDFC Ltd announced the merger on 4 April 2022. The board of housing finance firm HDFC Ltd has approved a proposal to merge its subsidiaries and associates with HDFC Bank.
HDFC Bank also announced the quarter 4 FY22 numbers and after this merger announcement, the shares of both HDFC Bank and HDFC Ltd had almost increased by up to 13.79%.
Apart from this, the stock price of HDFC Life Insurance Company and HDFC Asset Management Company (HDFC AMC) also saw a rise of 8.14% and 8.06% respectively.
According to the announcement made by both companies, HDFC Limited will merge with HDFC Bank and HDFC Limited will be dissolved as an entity.
Apart from this, the shares held by HDFC Limited in HDFC Bank will be extinguished. HDFC Limited’s subsidiary and associated will be transferred to HDFC Bank.
Why did HDFC Ltd merger with HDFC Bank
Shareholders of HDFC Limited will get 42 shares of HDFC Bank for every 25 shares they own. These mergers are expected to be completed by the second or third quarter of the financial year 24. After this merger, HDFC Bank can become India’s third-largest entity in terms of market cap.
Currently HDFC Limited has around 48% stake in HDFC Life Insurance Company and around 53% stake in HDFC Asset Management Company and after the merger, this stake will be transferred to HDFC Bank.
Approval for this merger is still awaited from RBI (Reserve Bank of India), SEBI (Security and Exchange Board of India), and shareholders.
After the merger, the existing shareholders of HDFC Limited will own 41% of HDFC Bank and after this proposed merger, HDFC Bank will be owned by 100% public shareholders.
What does deal mean for investors and customers
According to Analyse, this mega-merger could correct the recent underperformance in the stocks of these two companies. According to experts, HDFC Limited will get more benefits from this merger because their business is less profitable than HDFC Bank.
HDFC Bank said this merger will create value for shareholders, customers and employees, besides benefiting the combined business due to increased scale, comprehensive product offering, and strong balance sheet.
Apart from this, after the merger, HDFC Bank will get a lot of benefits from cross-selling products like life insurance and asset management.
Former SBI chairman Rajnish Kumar said that after this merger the cost of borrowing of HDFC Ltd will be reduced, due to which the cost efficiencies of the combined entity may increase.
HDFC Ltd. will also benefit from HDFC Bank’s distribution network so that they can increase their product penetration. After this merger, various business-related synergies and cross-selling opportunities can come out for both companies.
Apart from this, HDFC Bank will also be able to target the home loan segment which is generally long-term loans. After the advantages, now let’s see what negative impact can this merger have on the business of both companies.
In 2019, according to sources, the RBI (Reserve Bank of India) had unofficially advised banks to keep their stake in insurance companies up to a maximum of 30%. And recently in 2021 also there was news that RBI (Reserve Bank of India) had unofficially persuaded the banks to keep their stake cap in the insurers only at 20%.
So if RBI (Reserve Bank of India) makes any such official announcement, then after the merger HDFC Bank may have to reduce its holding in HDFC Life Insurance Company.
According to the guidelines of RBI (Reserve Bank of India), banks have to maintain a minimum statutory liquidity ratio (SLR) and cash reserve ratio (CRR).
In simple terms, commercial banks have to keep a certain percentage of their total deposits as cash (gold reserves), in the form of government bonds.
According to Analyse, HDFC’s net interest margin is around 3.6% to 3.7% while HDFC Bank’s net interest margin is more than 4%. In this case, the combined entity can have a profitability impact.
Hence, post-merger costs like SLR and CRR will be applicable which may impact their profit margins. Apart from this, according to the analysis, there are 80% of home loans in the books of HDFC Ltd, whose yield is relatively low.
HDFC Limited is a Non-Banking Financial Company (NBFC) but after the merger with HDFC Bank, the guidelines on banks will be applicable to the assets of HDFC Limited.
HDFC Bank share price – Financials
|52 Week High||1,725.00|
|52 Week Low||1,292.00|
|Mkt Cap (Rs. Cr.)||891,861|
|Book Value Per Share||379.49|
|Net Profit 2021 (Rs. Cr.)||31,857|
|Revenue 2021 (Rs. Cr.)||128,552|
|Dividend/Share (INR) (Mar 2021)||6.50|
|Promoters holding (Dec 2021)||25.8%|
HDFC Ltd share price – Financials
|52 Week High||3,021.10|
|52 Week Low||2,046.00|
|Mkt Cap (Rs. Cr.)||475,684|
|Book Value Per Share||904.77|
|Net Profit 2021 (Rs. Cr.)||13,566|
|Debt to equity (2021)||2.85|
|Revenue 2021 (Rs. Cr.)||139,033|
|Dividend/Share (INR) (Mar 2021)||23.00|
|FII holding (Dec 2021)||72.14%|
|DII holding (Dec 2021)||16.73%|
|Public holding (Dec 2021)||11.14%|
FAQs about HDFC Bank merger
HDFC Bank and HDFC Ltd announced the merger on 4 April 2022.
These mergers are expected to be completed by the second or third quarter of the financial year 24.
Shareholders of HDFC Limited will get 42 shares of HDFC Bank for every 25 shares they own.
After this merger, HDFC Bank can become India’s third-largest entity in terms of market cap.