The largest private sector bank in India with over 6.8 crore customers, HDFC will be merged with HDFC Ltd which is into home loans. This merger is likely to create the third-largest entity in India in terms of market capitalisation. HDFC said that its shareholders will get 42 shares of HDFC Bank for every 25 shares of the non-banking lender held by them.
"The proposed transaction would create meaningful value for various stakeholders including respective shareholders, customers, employees, as the combined business would benefit from increased scale, comprehensive product offering, balance sheet resiliency, and the ability to drive synergies across revenue opportunities," HDFC said in an exchange filing.
The market value of the merged entity will be close to Rs 12.8 lakh crore based on the market capitalisation of HDFC and HDFC Bank as of April 1. HDFC said that it will hold a 41% stake in the merged entity. It will allow the HDFC Group to build a highly competitive housing loan portfolio under the banking platform. Currently, HDFC Bank sells the home loans of HDFC Ltd and earns from it.
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Prior to the merger, HDFC's shares were nearly 52-week low while HDFC Bank's stock rose merely 4% in the past year. With the announcement, shares of HDFC were up 10.75% at Rs 2,716 on the National Stock Exchange, while those of HDFC Bank were higher by 9% at Rs 1,641. Analysts suggested that the merger will create the biggest stock in terms of weight in the Nifty50 index.
How HDFC Bank will benefit?
The merger will create a large balance sheet of Rs 25.61 lakh crore, which is now closer to the country's largest bank.
The country's largest public sector bank, the State Bank of India has a balance sheet of Rs 45.34 lakh crore.
The HDFC Bank was already the country's second-largest bank after State Bank of India and largest private sector bank.
India's second largest private sector ICICI Bank has a balance sheet size of Rs 17.74 lakh crore as of March 31, 2021.
