The proposed merger between HDFC Bank and Housing Development Finance Corp (HDFC) creates a lender that ranks fourth in equity market capitalization, behind JPMorgan Chase & Co., Industrial and Commercial Bank of China Ltd. and Bank of America Corp., according to data compiled by Bloomberg. It’s valued at about $172 billion. The company will for the first time rank among the world’s most valuable banks after completing a merge, Bloomberg reported.
The merger has been described as the largest transaction in India's corporate history. The bank entered into an agreement to acquire the country's largest domestic mortgage lender in a deal valued at approximately $40 billion, establishing a formidable financial services powerhouse. The proposed merger will result in the creation of an entity with a combined asset base of approximately Rs 18 lakh crore.
Following the merger, the new HDFC Bank entity will have around 120 million customers, which is greater than Germany’s population. It’ll also increase its branch network to over 8,300 and boast of total headcount of more than 177,000 employees.
After the proposed merger, HDFC surges ahead of banks, including HSBC Holdings Plc and Citigroup Inc. The bank will also leave behind State Bank of India and ICICI Bank, with market capitalizations of about $62 billion and $79 billion, respectively, as of June 22.
HDFC Chairman Deepak Parekh on June 27 said that the merger of the housing finance major with the country's largest private lender HDFC Bank will be effective from July 1. Parekh said that the boards of HDFC and HDFC Bank will meet on June 30 to clear and approve the merger. Last April, the merger of HDFC Bank and Housing Development Finance Corporation (HDFC) was announced. According to the proposed plan, HDFC will acquire a 41 per cent stake in HDFC Bank through this merger. As per the report, HDFC vice-chairman and CEO Keki Mistry said that the stock delisting of Housing Development Finance Corporation (HDFC) will be effective from July 13.
“Worldwide there are very few banks, which can at this scale and size, still aspire to double over a period of four years,” Suresh Ganapathy, head of financial services research for India at Macquarie Group Ltd.’s brokerage unit, said in a Bloomberg TV interview. The bank expects to grow at 18 per cent to 20 per cent, there is very good visibility in earnings growth, and they plan to double their branches in the next four years, he said. “HDFC Bank will remain a pretty formidable institution.”
HDFC Bank has consistently outperformed its peers in garnering deposits and the merger offers another chance to grow its deposit base by tapping the existing customers of the mortgage lender. Some 70 per cent of those customers do not have accounts with the bank. Arvind Kapil, retail head at the bank, last month said he plans to get them to open a savings account.
The lender will be able to offer in-house home loan products to its clients as only 2 per cent of them had a mortgage product from HDFC Ltd., according to a presentation when the merger was announced.
“The lifetime value of a customer’s relationship with that bank just enhances when you start to put a mortgage into his product offering,” Sashi Jagdishan, the bank’s chief executive, said at the time.
HDFC Bank, which counts JPMorgan among its largest investors, is enjoying high levels of investor confidence. Its contingent convertible bonds — the riskiest type of debt that can convert to equity if a lender runs into trouble — has outperformed its global peers. The perpetual dollar notes of HDFC Bank handed investors a return of 3.1 per cent so far this year, even as Bloomberg’s index of global banks’ coco bonds lost 3.5 per cent.
HDFC Bank shares are up less than the NIFTY Bank index over the past year. Ganapathy, the Macquarie analyst, reckons the stock’s performance will depend on the growth of the loan book at 18-20 per cent, and a 2 per cent return on assets.