What HDFC And HDFC Bank Merger Means For Shareholders

The merger between HDFC, a major housing finance company, and HDFC Bank, the country’s largest private lender, will take effect on July 1.

Speaking to the Times of India, HDFC Chairman Deepak Parekh confirmed that the boards of HDFC and HDFC Bank will meet on June 30 to clear and approve the merger. Post-merger, HDFC branches will remain operational, but their signboards will display HDFC Bank.

Parekh also mentioned that HDFC’s stock delisting will take place from July 13. The merger, considered the largest transaction in India’s corporate history, received agreement on April 4 last year.

Merger Math: Projections show that the merged entity will have an asset base of approximately ₹18 lakh crore. Upon implementation of the merger, public shareholders will have complete ownership of HDFC Bank, and the current shareholders of HDFC will retain a 41% stake in the bank.

HDFC Bank will emerge as the surviving entity and will adopt the name HDFC Bank Limited. Shareholders of HDFC Ltd will receive 42 shares of HDFC Bank for every 25 shares of HDFC Ltd they hold.

How will the merger impact HDFC Bank and HDFC Ltd share prices?

Analysts expect the share prices of both HDFC Bank and HDFC Ltd to benefit from the merger in the long term. The combined entity, with a larger balance sheet, customer base, product portfolio, and distribution network, is likely to enhance the capital adequacy, asset quality, and profitability of the merged entity.

However, the share prices of both HDFC Bank and HDFC Ltd may experience short-term volatility due to integration challenges, regulatory approvals, operational issues, and market uncertainties. The merger will also affect the shareholding pattern, earnings per share, and book value per share of both companies.

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Meanwhile, analysts covering India’s largest lender are becoming more optimistic as the merger’s completion removes a significant overhang, shifting the focus to the lender’s ability to capitalize on growth in a robust credit environment for the sector.

According to data compiled by Bloomberg, buy recommendations for HDFC Bank now make up around 98% of the total calls on the stock, the highest since October 2000. This year, the lender has seen the most significant improvement in analyst sentiment compared to major rivals such as ICICI Bank, State Bank of India, and Axis Bank.

Why did the HDFC Twins merge?

Per the Indian Express, the decision to merge the “HDFC twins” in April 2022 was driven by three key factors. Firstly, the low interest rate environment was conducive.

Secondly, the Reserve Bank of India (RBI) reduced the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) from 27% to 22%. Thirdly, there was high liquidity in the system.

As the leadership at HDFC Ltd approached 70 and questions about succession emerged, they saw a merger with HDFC Bank as the optimal path to synergise benefits.

While Aditya Puri served as the MD of HDFC Bank, they considered the proposal but couldn’t move forward due to multiple concerns. Despite ongoing speculation, they managed to keep the merger news confidential until the formal announcement.

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