HDFC Bank and HDFC Limited (HDFC Ltd) announced on Monday that the two entities are going to merge. It is going to be one of the biggest Mergers and Acquisitions (M&A) deals in the Indian financial sector.
There was a sharp rise in the share prices of these two entities this announcement, which were up by over 7% in the early trading hours.
According to HDFC Bank, the transaction is expected to close in the next 18 months, subject to finalisation of regulatory approvals and other customary closing conditions. The subsidiary/ associates of HDFC Ltd will also be transferred to HDFC Bank.
According to the transaction structure, India’s largest housing finance company HDFC Ltd with Assets Under Management (AUM) of Rs. 5.26 trillion and a market cap worth Rs. 4.44 trillion will merge with HDFC Bank, which is India’s largest private sector bank as per assets with a market cap of Rs. 8.35 trillion.
This proposed merger will result in reducing HDFC Bank's exposure proportion to unsecured loans and it will also bolster the capital base.
The merger will be beneficial for HDFC as well as HDFC Bank as after the HDFC will merge into HDFC Bank, the shareholders of HDFC Bank will turn 100% shareholders of HDFC.
There is already a positive impact on the stock prices and it is expected to help both companies to increase their profitability.
In India, private sector banks need scale to cater to the dormant demand for credit in the economy in the upcoming decade. So, the banking sector is set for consolidation. It can be the merger of banks with NBFCs (Non-Banking Financial Companies) in some cases having complimentary credit profile.
The merger of HDFC Ltd. and HDFC Bank was long expected because it provides the entities access to cheaper funds and franchise. The merger is expected to be a win-win situation in the long term for shareholders of both entities.
Share swap ratio of the transaction
As on record date, shareholders of HDFC Ltd. will receive 42 shares of HDFC Bank for 25 shares of HDFC Limited. The combined balance sheet of Rs. 17.87 trillion & Rs. 3.3 trillion net worth will enable larger underwriting at scale.
Is HDFC and HDFC Bank merger approval from RBI?
Yes, this merger between HDFC and HDFC bank is approved by different regulatory authorities including Reserve Bank of India (RBI), Insurance Regulatory and Development Authority of India (Irdai) and the Pension Fund Regulatory and Development Authority (PFRDA). Apart from this, the merger has also been greenlit by the shareholders. On 17th March, National Company Law Tribunal(NCLT) also approved of this merger.
Is HDFC merger legal?
Yes, HDFC merger is comp-letely legal and being executed only after getting requisite approvals from concerned regulatory authorities like RBI, IRDAI, PFRDA, NCLT to name a few.
What is the final date of HDFC merger?
There is no exact date for the merger but it is speculated that this mammoth HDFC - HDFC bank merger will get completed by July end.
What is the HDFC merger ratio?
For every 25 fully paid-up equity shares of face value of Rs 2 each of HDFC, 42 equity shares of HDFC Bank with a face value of Re 1 each will be credited as fully paid up in the share exchange ratio.