HDFC Merger: A Gamechanger For NBFCs And Borrowers? Here's All You Need To Know

With a balance sheet of around Rs 18 lakh crore, the resulting financial services giant is also expected to be flush with cash

By Ashish Kukreja 

India's biggest private lender, HDFC Bank, has merged with the largest mortgage lender, Housing Development Finance Corporation. Following the merger, the combined organisation will become the fourth-largest bank globally in terms of market cap. With the merger, the bank would be twice as large as ICICI, the second-largest private bank in the country.

With a balance sheet of around Rs 18 lakh crore, the resulting financial services giant is also expected to be flush with cash. At the end of the financial year 2022, HDFC Ltd had a loan book of Rs 5.68 lakh crore, while HDFC Bank had a loan book of Rs 13.69 lakh crore. The mortgage lender will transfer all of its loans to the bank, which will greatly increase the bank’s assets under management.

What does the market expect from the merger?

With the merger, the bank is now in a position to offer bigger loans, especially for infrastructure projects, which will further boost infrastructure development in the country. Due to the availability of low-cost funds with HDFC Bank, the institution can cater to the demand for cost-effective housing loans for low and middle-income groups.

Post-merger, they will have the external benchmark lending rate (EBLR), which the RBI monitors. Due to the EBLR, borrowers will benefit from increased transparency and accountability in the loan pricing system.

Furthermore, HDFC Bank could borrow more money at lower interest rates and pass the benefits on to its customers. So, there are chances of the bank lowering the interest rates. Prospective homebuyers can expect new products such as Axis Bank's Quick Pay – a financing solution that allows you to pay off the principal earlier in the loan term.

How will it benefit the Real Estate Sector?

The merger will increase the flow of credit into the economy. It is expected to stimulate the real estate sector by reducing ROIs and increasing access to home loans for low- and middle-income individuals. This is likely to indirectly support the growth of the real estate industry by providing large loans for infrastructure projects.

Beginning of the financial revolution in the country?

During the Monetary Policy Committee meeting, RBI Governor Shaktikanta Das subtly suggested that NBFCs open to restructuring themselves may have the opportunity to obtain a bank license. The candidates for the same would be Bajaj Finserv, M&M Financial Services, and Poonawala Fincorp.

So, will this mega merger be the beginning of the financial revolution in the country? The way NBFCs are managed and owned in India leaves little room for nurturing their banking ambitions unless they are willing to cede control fully.

Most of these players operate in product segments and with customers where banks may be hesitant to compete. These include Bajaj Finance (the finance arm of Bajaj Finserv), Mahindra Finance, Cholamandalam Group, and Muthoot. In consumer finance, for instance, banks have not matched Bajaj Finance, despite repeated efforts.

IndusInd Bank is the only bank with a toehold in vehicle financing, although other banks have a presence. Therefore, these NBFCs are highly relevant and important; if they become a bank, they may lose their grip on the current market and product niche.

Following the wave of economic liberalization in the 1990s, HDFC Bank was one of the first private sector banks to open operations in India. It will be interesting to see if it will pioneer India's new banking sector revolution.

The writer is the CEO and founder at Homesfy.in

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