HDFC Bank's Growth Strategy After Merger: Home Loans to Remain Top Priority

9 Jun 2023 , 01:11 AM

Following the completion of the merger with HDFC Ltd, HDFC Bank Ltd would maintain home loans as the cornerstone of its growth strategy, with such credit likely to account for almost a third of the bank’s portfolio going forward, according to two senior officials at the firm who talked to Reuters.

The first person stated that the rate of increase in home loans will largely reflect the rate of growth seen in HDFC’s home loan portfolio.

According to its investor presentation, individual house loans have increased over the past five years at a compound annual rate of 16%.

Since the pandemic, there has been an increase in the house loan market, which is considered as a stable growing industry with minimal delinquencies.

The source stated that although the portfolio share would fluctuate depending on the growth of other areas, the organization is content for it to remain at current levels.

The official continued according to Reuters, ‘We view mortgages as a secured sticky product that can produce sticky deposits and encourage lending into a number of home-related personal loan categories.

The largest housing financier in India will merge with the bank it parented in 1994, which is now the largest private banker in the nation. The merger, which was announced in April of last year, is anticipated to be completed in early July.

After the transaction, the bank will receive HDFC’s 7.2 trillion rupee ($87.32 billion) portfolio, which accounts for nearly 30% of the bank’s total loan book. Included in this are individual mortgages totaling 6.02 trillion rupees. The housing loan business won’t operate as a separate vertical, but HDFC’s front-line workers will continue to drive growth in that product while expanding offers to other retail loans as well, according to the second official.

The first official also said that the bank’s general credit department would make credit determinations for mortgage loans.

The banking division of HDFC Bank, which is its second-largest section, will increase its ownership from 48.7% to over 50% in the life insurance segment and from 49.9% to over 50% in the general insurance segment.

Due to a business overlap with the bank, the Reserve Bank of India has also requested that HDFC sell a majority ownership in Credila Financial Services, which provides education loans and is worth at between $1.2 billion to $1.5 billion.

Negotiations are advanced, but this transaction won’t be completed before the merger, according to the second person. According to the first official, HDB Financial, the non-bank lending division of HDFC Bank, will continue to exist as a separate legal entity and work towards becoming public before 2025.

As a result, the bank might be able to join the MSCI index for the first time since 2013, which might encourage inflows from abroad.

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