HDFC-HDFC Bank Merger Proposal Receives Green Light From BSE, NSE; What happens next?

Merger between HDFC Bank and HDFC: HDFC Bank and its parent company HDFC have moved closer to the merger process as stock exchanges approve their merger plan. HDFC Bank has received a comment letter with “no adverse comments” from ESB and a comment letter with “no objections” from the National Stock Exchange of India, both dated July 2, 2022, regarding the proposed composite merger scheme for the merger of: (i) HDFC Investments and HDFC Holdings, wholly owned subsidiaries of Housing Development Finance Corporation (HDFC), with and into HDFC and (ii) HDFC with and into HDFC Bank.

In their separate regulatory filing, HDFC Bank and HDFC said, “The program remains subject to various statutory and regulatory approvals, including approvals from the Competition Commission of India, Reserve Bank of India, National Company Law Court and of the respective shareholders and shareholders. creditors of the companies involved in the Scheme, as needed”.

On April 4, HDFC Bank announced that parent company HDFC will merge with the bank to enable seamless home loan distribution and leverage across HDFC Bank’s broad base of over 68 million customers and, among other things, improve the rate of credit growth in the economy.

After the merger with HDFC, HDFC Bank will become one of the largest banks in the world. This deal is worth around Rs 4.53 lakh crore, which is the second largest trade deal so far in 2022 this year. At the conclusion of this deal, post-merger, the market capitalization of the bank may approach Rs 15.12 lakh crore. This merger of HDFC and HDFC Bank is expected to be completed by the second or third quarter of fiscal 2024.

What happens next?

After the merger, HDFC Bank will be 100% owned by public shareholders, while existing HDFC shareholders will own 41% of HDFC Bank. Subsidiaries and associates of HDFC will transition to HDFC Bank.

This means that HDFC will acquire a 41% stake in HDFC Bank through the transformational merger. Every 25 shares held by HDFC shareholders will net them 42 shares of the bank. The merger has created an entity which will have a market capitalization of Rs 12.8 lakh crore and a balance sheet of Rs 17.9 lakh crore.

HDFC Chairman, Deepak Parekh, while announcing the plan, had called it a “merger of equals” and attributed the RBI’s strict regulations on Non-Banking Financial Companies (NBFCs) as one of the main reasons for the merger.

After the merger, there will be a combined customer base of HDFC Bank and HDFC and they will be offered a number of financial products – savings accounts, mortgages or home loans, life insurance, general insurance, health insurance, credit cards, investment products and personal loans.

The merger between HDFC and HDFC Bank has been in the news for some time. In fact, in 2015, Parekh said his company might consider a merger with HDFC Bank provided the circumstances are right.

With the parent company finally giving the go-ahead to the merger, the resulting entity is set to become a powerhouse in India’s banking industry.

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