HDFC Bank & HDFC limited mega Merger- One of the largest corporate merger in India
Mumbai on 4th April
The MEGA Merger:
The announcement was made by both the companies that HDFC limited & HDFC Bank will merge and will be entitled as one entity HDFC Bank.
The board of housing finance from HDFC limited, Indian's largest housing finance company with around 5.26 trillion of under management asset and 4.4 trillion of market caphas approved the proposal to merge its subsidiaries and associates with HDFC Bank - India’s Largest private sector bank with market cap of 8.34 trillion.
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| HDFC limited &HDFC Bank Merger 2022 |
Share swap ratio for post merger:
The shareholders of HDFC limited will get 42 shares of HDFC Bank for every 25 share they buy.
The subsidiaries and associates of HDFC limited will be transferred to HDFC Bank.
On post merger the existing shareholders of HDFC limited will own 41% of HDFC Bank this is after the proposed merger as HDFC bank will be 100% owned by the public shareholders.
Further the sharesheldby HDFC limited in HDFC Bank shall bedissolved fully.
Even though the merger is not yet approved by RBI, SEBIand the shareholders.The expected time to complete this merger in 2nd& 3rd quarter of FY 2024.
Currently as HDFC limited holds 48% of its stake in HDFC life and around 53% of stake in HDFC AMC. Which will be transferred to HDFC Bank after the merger.
How will the mergers benefit the company and its shareholders?
As per the announcement this merger will create value for shareholder, customers and employees.
The merger will help to create a strong balance sheet for a combined business increasing the sales and broad product offering for customers. A power to create different business synergies and crossing selling opportunities.
The wide distribution network of HDFC Bank can do wonders for HDFC limited and Leverage hem by increasing product penetration.
As per some market analysts this merger could correct the recent underperformance in the stock of this two companies.
In addition, HDFC Bank will benefit greatly from cross selling production such as life insurance and asset management.
What are the Negative effects of the merger?
According to RBI guidelines, banks are required to have a minimum statutory liquidity ratio (SLR) on cash reserve ratio. In simple words, commercialbank reserves a certain percentage of their total deposit in the form of cash, government bonds & reserves.
HDFC is an NBFC but the guidelines applicable to the of Bank will also be applicable ton HDFC limited after the merger.
However after the merger cost like CLR &SLR will be applicable and may impact their profit margin.
In addition as per some market analysts, HFDC’s Net interest margin is around 3.6-3.7% where HDFC BANK has performed better with more then 4% of Net interest margin.
In that case, the profitability of the combined entities may have to face the impact.
There is a point of concern that in 2019 that in 2019 the RBA has unofficially advised banks to keep their stake an insurance company not more than 30% and even in 2021 they reported that our wares unofficially told the banks to keep their stake max 20%.
In that case HDFC Bank may have to reduce their holdings in HDFC life.
HDFC bank has recently recorded growth in present quarters with 20.9% advance year by year and 8.6% of growth on quarter by quarter basis till the March end.
Where as the retail deposit group by 18.5% on year by year and round 6% quarter by quarter.
CASA ( Current account and savings account) of HDFC Bank has also increased from 47% to 48% compared to previous quarter.
Conclusion :
This mega merger is definitely the most anticipated event in near future. The impact of the same is yet to be seen on the Indian market, weighing the pros of the merger.
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