HDFC to merge with HDFC Bank

4 Apr 2022 , 09:51 AM

Following the announcement, shares of HDFC surged 12.14% to Rs 2,748.45 and shares of HDFC Bank surged 9.06% to Rs 1642.80 on the BSE.

The board of Housing Development Finance Corporation (HDFC) on Monday (4th April) approved a composite scheme of amalgamation of HDFC into HDFC Bank, and their respective shareholders and creditors. The subsidiaries and associates of HDFC will shift to HDFC Bank.

Shareholders of HDFC as on the record date will receive 42 shares of HDFC Bank (each of face value of Re 1), for 25 shares held in HDFC (each of face value of Rs 2), and the equity share(s) held by HDFC in HDFC Bank will be extinguished as per the Scheme.

As a result of this, upon the Scheme becoming effective, HDFC Bank will be 100% owned by public shareholders and existing shareholders of HDFC will own 41% of HDFC Bank.

The proposed transaction is to create a large balance sheet and net-worth that would allow greater flow of credit into the economy. It will also enable underwriting of larger ticket loans, including infrastructure loans — an urgent need of the country, HDFC said in a statement.

The proposed transaction will result in reducing HDFC Banks proportion of exposure to unsecured loans.

Post the combination, HDFC Banks 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 enhanced value proposition and customer experience for all customers of the combined entity.

The boards of HDFC and HDFC Bank believe that the merger will create long-term value for all stakeholders, including customers, employees and shareholders of both entities. The amalgamation of the two entities will provide further impetus to the Governments vision of ?Housing for All?.

Deepak Parekh, chairman HDFC, said, This is a merger of equals. We believe that the housing finance business is poised to grow in leaps and bounds due to the implementation of RERA, infrastructure status to the housing sector, government initiatives like affordable housing for all, amongst others. Over the last few years, various regulations for banks and NBFCs have been harmonised, thereby enabling the potential merger. Further, the resulting larger balance sheet would allow underwriting of large ticket infrastructure loans, accelerate 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.

The merger is expected to close within 18 months (Q2 / Q3 FY24), subject to completion of regulatory approvals and other customary closing conditions.

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