India Inc's biggest union: Merged HDFC to overtake TCS, second only to RIL

In the biggest merger in the history of India Inc, mortgage firm HDFC Ltd will unite with HDFC Bank, creating a banking behemoth with a market capitalisation of Rs 14 lakh crore.

After the merger, HDFC Bank will be 100 per cent owned by public shareholders, and existing shareholders of HDFC Ltd will own 41 per cent of HDFC Bank. Shareholders of HDFC Ltd will receive 42 shares of HDFC Bank (face value of Re 1 each) for 25 shares of HDFC Ltd of Rs 2 each  a ratio of 1:1.68.

Following the announcement by HDFC chairman Deepak Parekh, HDFC Bank shares shot up by 9.97 per cent to Rs 1,656.45 on the BSE Monday. HDFC Ltd shares rose by 9.30 per cent to close at 2,678.90.

The combined market capitalisation will allow HDFC Bank to overtake TCS and become No. 2 in evaluation after Reliance Industries Ltd (Rs 18.01 lakh crore).

“The merger is a coming together of equals,” Parekh said. He said it is like “after 45 years and 9 million home loans, we have found a home for ourselves.” He said they have found it in their home company — HDFC Bank.

 “A bigger balance sheet and capital base will allow greater flow of credit into the economy. It will enable underwriting of larger ticket loans including infrastructure, which is an urgent need of the country,” he said.

HDFC Ltd is India’s largest housing finance firm with total assets under management of Rs 5.26 lakh crore and a market cap of Rs 4.85 lakh crore. HDFC Bank is India’s largest private sector bank by assets with a market cap of Rs 9.17 lakh crore. Subsidiaries and associates of HDFC Ltd will become subsidiaries and associates of HDFC Bank. HDFC and its two subsidiaries currently hold 21 per cent stake in HDFC Bank. This stake will be extinguished after the merger.

HDFC will remain to operate as an independent entity on an ‘as is’ basis until the effective date of merger. “It is envisaged that post the effective date, all HDFC branches/offices in India will be retained and mortgages will continue to be offered from these outlets. Over a period of time, these branches will be converted to full-service banking branches,” Parekh said.

“After 45 glorious years of providing home loans to over 9 million customers, the time is right for HDFC to find a new home. Our new home is with our family, with our own people, but it’s bigger, better and significantly more promising,” he said.

The bank has requested the RBI for a phased-in approach in respect of statutory liquidity ratio (SLR) and cash reserve ratio (CRR), priority sector lending, grandfathering of certain assets and liabilities and in respect of some subsidiaries. “These requests are under consideration by the RBI in terms of their letter dated April 1,” he said.

Post the combination, HDFC Bank’s customers will be offered mortgages as a core product in a seamless manner. HDFC Bank will also leverage the long tenor mortgage relationship to offer varied credit and deposit products enabled through better insights through-out the customer life-cycle. This will result in an improved value proposition and customer experience for all customers of the combined entity, HDFC Bank MD and CEO Sashidhar Jagdishan said.

Over the last few years, regulatory developments and reforms including higher regulatory standards for the non-banking financial companies (NBFCs) narrowing the gap with the banking regulatory framework, reduction in SLR rates, deepening of affordable housing bond market and creation and deepening of Priority Sector Lending Certificates market, have created a conducive environment for amalgamation of the two entities, leading to a “win-win” situation for all stakeholders, HDFC said.

“Further, the resulting larger balance sheet would allow underwriting of large ticket infrastructure loans, quicken the pace of credit growth in the economy, boost affordable housing and increase the quantum of credit to the priority sector, including credit to the agriculture sector,” Parekh said.

HDFC was among the first to receive an in-principle approval from the RBI to set up a bank in the private sector as part of the RBI opening up the Indian banking industry in 1994. HDFC Bank was combined as a subsidiary of HDFC and later listed its shares on the bourses.

H T Parekh was the founder chairman of HDFC, the first retail housing finance company in the country set up in 1977.