What The FAQ: Why is HDFC Limited merging with HDFC Bank and what will it lead to?

Wondering what will happen when HDFC Limited and HDFC Bank merge? We tell you more about one of the most anticipated mergers 
The merger is on | (Pic: Edexlive)
The merger is on | (Pic: Edexlive)

The board members of the Housing Development Finance Corporation (HDFC) initiated the move to merge HDFC Limited, one of India’s largest housing finance companies, and HDFC Bank, one of the country’s largest private lenders. 

The merger between the two banks will result in creating India’s third-biggest financial entity in terms of market capitalisation. Now, let us learn about why HDFC took the decision and what is the impact of merging two banks on the customers. 

Why is HDFC Limited merging with HDFC Bank?
Deepak Parekh, Chairman of HDFC Limited informed that, in the coming years, the housing finance business is gearing up for the implementation of the Real Estate (Regulation and Development) Act, 2016; infrastructure status to the housing sector and other government initiatives. Further, the merger results in a larger balance sheet which would allow large infrastructure loans and accelerate credit growth in the economy. 

Additionally, he also issued a statement saying that this is a merger of equals.

What are the benefits of the merger?
The benefits of the merger are that it brings together complementary strengths of two organisations, which rewards and strengthens customer relationships. It also acts as a long tenor mortgage relationship to offer varied credit and debit products which enable better insights throughout the customer cycle. 

What are analysts saying about the merger?
As per a report in Financial Express, the analysts at Emkay Global Financial Services, an advisory and transactional services company, state that after the merger, the loan book of HDFC Bank will cross Rs 18 trillion and it will become the eighth largest bank globally, by market capital. The merger also increases the private lender market’s share. The analysts at Nirmal Bang, a broking and trading company, state that there is a huge growth runaway for HDFC Bank once the merger is completed and raise cross-selling opportunities for HDFC Bank as it takes charge of the mortgage book.

For how long has it been in the discussion?
The merger of HDFC Limited and HDFC Bank had gained steam nearly eight years ago when the Reserve Bank of India allowed banks to issue long term bonds for funding infrastructure and affordable housing. 

When will the discussion end?
According to the statement by HDFC Bank, the merger is expected to close over the next 18 months after the completion of regulatory approvals and other customary closing conditions.

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