Mortgage lender HDFC is set to complete its reverse merger with its subsidiary HDFC Bank, effective Saturday, following the receipt of all requisite regulatory and shareholder approvals. The move means HDFC, the country's first housing finance company will cease to exist. At the same time, its amalgamation into HDFC Bank will create a banking sector behemoth, rivalling American and Chinese lending giants, with a market capitalisation of around $180 billion.
In April 2022, HDFC had agreed to merge with the country's largest private sector lender HDFC Bank in a $40 billion deal, which was the largest such in corporate India. The merger will create a financial sector behemoth with a combined asset base of more than Rs 18 lakh crore.
"This is a defining event in our journey and I’m confident that our combined strength will enable us to create a holistic ecosystem of financial services," said Sashidhar Jagdishan, the MD and CEO of HDFC Bank.
The merger combines the strengths of a trusted home loan brand with an institution that enjoys a lower cost of funds, noted HDFC Bank.
"The larger net-worth would allow greater flow of credit into the economy. It will also enable underwriting of larger ticket loans, including infrastructure loans," it said.
The merger will also mark the transformation of HDFC Bank into a financial services conglomerate with a full suite of products and services including banking, general and life insurance, securities and mutual funds through its subsidiaries.
HDFC Securities, HDB Financial Services, HDFC Asset Management, HDFC Ergo General Insurance, HDFC Life Insurance and HDFC Capital Advisors will be the key subsidiaries of HDFC Bank post the merger. Up until now, HDFC Bank was only a distributor of their products.
A giant emerges
On Friday, HDFC shares closed up 1.5 per cent at Rs 2,821.50 with a market cap of more than Rs 5.22 lakh crore. HDFC Bank also rose 1.5 per cent to end at Rs 1,701.75 with a market cap of close to Rs 9.52 lakh crore.
The combined market cap of Rs 14.74 lakh crore, or around $180 billion, will catapult it to among the top five global banks as of June 30. US banking giant JP Morgan Chase had a market cap of $419 billion, followed by Bank of America Corp at $228 billion, and Chinese lenders Industrial and Commercial Bank of China and Agriculture Bank of China with a market cap of $223 billion and $166 billion respectively.
While, HDFC Bank reported a net profit of Rs 44,109 crore in the year-ended March 2023, HDFC's net profit for the year stood at Rs 16,239 crore. Thus, the total net profit totalled Rs 60,348 crore.
The total advances in 2022-23 stood at over Rs 22.21 lakh crore (HDFC Bank's advances at Rs 16 lakh crore and HDFC's at Rs 6.21 lakh crore). HDFC Bank's total deposits stood over Rs 18.83 lakh crore as of March 2023.
HDFC had 4,017 employees, to HDFC Bank's 173,222 as of March 31. All employees of HDFC Ltd. as on effective date become HDFC Bank employees.
What the merger means for shareholders
The combined market cap of around Rs 14.74 lakh crore, will not only make it the fourth largest lender globally, its market cap will be significantly more than that of Tata Consultancy Services' Rs 12.07 lakh crore as of June 30. HDFC Bank, will thus, become the second most valuable company on domestic bourses, after Reliance Industries, which had a market cap of close to Rs 17.26 lakh crore as on June 30.
HDFC Bank's weight in the benchmark indices like Sensex and Nifty will also go up. In the Sensex, for instance, HDFC Bank had a weight of around 9.6 per cent and HDFC around 6.5 per cent. The combined weight of around 17 per cent, will eclipse Reliance Industries' weight of around 13.4 per cent in the Sensex.
Once the merger is complete, HDFC Bank will be completely owned by public shareholders and there will be no specific promoter. As per the merger ratio, HDFC shareholders will get 42 shares of HDFC Bank for every 25 shares they hold of HDFC. Both the companies have set July 13 as the record date for the share swap, post which, HDFC will get delisted from stock exchanges.