HDFC-HDFC Bank merger: From share arrangement to improving balance sheet, know top 10 takeaways

India’s largest private sector bank – HDFC Bank has announced a transformational merger with its non-banking finance company promoter HDFC Limited on Monday. Several analysts believe that the timing of the merger has caught everyone by surprise and it is a win-win for both entities.  

However, while announcing the merger the bank has put out a list of rationales and positives revolving around the amalgamation.  

See Zee Business Live TV Streaming Below:

In this regard, below are the top 10 takeaways of the merger.  

1) The merger ratio will be 42 shares of HDFC Bank for 25 shares of HDFC Limited as per the scheme of arrangement.  

2) Post-merger, HDFC Bank will be 100 per cent owned by public shareholders, and existing shareholders of HDFC Limited will own 41 per cent of the bank. 

3) The proposed transaction shall enable HDFC Bank to build its housing loan portfolio and enhance its existing customer base.

4) The proposed transaction would create meaningful value for various stakeholders as the combined business would benefit from increased scale, comprehensive product offering, balance sheet resiliency, and the ability to drive synergies across revenue opportunities among others, the company said in its exchange filing.  

5) HDFC Bank would benefit from a larger balance sheet and net worth which would allow underwriting of larger ticket loans and enable a greater flow of credit into the Indian economy, the exchange filing said. 

6) The loan book of HDFC Limited is diversified having cumulatively financed over 90 lakh dwelling units. With HDFC Limited's leadership in the home loan arena, HDFC Bank would be able to provide customers with flexible mortgage offerings in a cost-effective and efficient manner. 

7) HDFC Bank has access to funds at lower costs due to its high level of current and savings account deposits. With the amalgamation, HDFC Bank will be able to offer competitive housing products. 

8) HDFC Limited's rural housing network and affordable housing lending is likely to qualify for HDFC Bank as priority sector lending and will also enable a higher flow of credit into priority sector lending, including agriculture. 

9) The proposed transaction will result in reducing HDFC Bank's proportion of exposure to unsecured loans. 

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