HDFC Twins Merger to Produce 4th Largest Bank in the WorldHDFC-HDFC Bank merger which is set to take place on July 1 will see HDFC shareholders getting 42 shares of HDFC Bank for every 25 shares they hold.
ByPriya Kapoor•
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The much-awaited merger of HDFC Bank and Housing Development Finance Corporation is set to take place on July 1. With this, HDFC bank will become the fourth largest bank (after JPMorgan Chase & CoIndustrial, Commercial Bank of China Ltd. and Bank of America Corp) in the world by market capitalization. Not only this, the merged entity will also be the second largest bank in India after the State Bank of India (SBI), and twice the size of ICICI Bank, which is the third largest bank in the country. It will be valued at about $172 billion, and have over 8,000 branches and 1.7 lakh employees, respectively.
The merger that was approved on April 4, 2022, in a $ 40-billion all-stock deal, will produce an entity that will have a balance sheet of INR 31.9 lakh crore and a loan book of INR 22.2 lakh crore.
What's in for shareholders
The shares of HDFC Group will be delisted from the stock exchange from July 13, and post merger HDFC Bank will be 100 percent owned by public shareholders. Every HDFC shareholder will get 42 shares of HDFC Bank for every 25 shares they hold.
Moreover, the shares of the merged entity will have the highest weighting on the indices, at close to around 14 per cent, which is much higher than 10.4 per cent held by Reliance Industries at present.
What's in for borrowers
While the resultant entity will be able to take the advantage of having HDFC's home loan clients and get opportunities in cross-selling of different products, what do borrowers get out of it?
Post merger, the new entity has to follow External Benchmark Lending Rate (EBLR). So far, HDFC Ltd. which were categorised as Non-Banking Finance Companies (NBFCs) had its own benchmarks according to which it specified interest rates. But this will change now and the interest on the home loans of HDFC will be altered according to the EBLR, which could be RBI's repo rate, 3-month treasury bill, 6-month treasury bill or any other criteria. The existing HDFC borrowers would benefit if the bank decides to lower home loan interest rates as per EBLR.
The depositors, on the other hand, would be given the option to either withdraw their deposits or renew on maturity at the HDFC bank rates.
Post merger, the HDFC branches will continue to operate, and all employees under the age of 60 will be absorbed in the new entity, according to HDFC Chairman Deepak Parekh.
