HDFC-HDFC Bank merger: On global stage today, $180 bn banking giant

The boards of directors of HDFC and HDFC Bank have approved a merger of the two effective July 1, 2023, the two companies told the exchanges late Friday. After the merger, HDFC Bank will be the fourth largest bank in the world with a market capitalization of 14.73 trillion rupees, or approximately $180 billion.

On July 13, HDFC shareholders will be issued shares of HDFC Bank, and HDFC shares will not be traded on stock exchanges.

“This is a defining milestone in our journey and I am confident that our combined strength will enable us to create an inclusive financial services ecosystem… I believe our journey will be defined by agility, adaptability and relentless pursuit of excellence,” said Sashidhar Jagdishan, Managing Director and CEO of HDFC Bank. We embrace challenges as opportunities, learn from our experiences, and strive to be the benchmark for success and integrity in the financial services industry.”

Before the effective date of the merger, HDFC Holdings and HDFC Investments were merged into HDFC. After the merger, HDFC Bank’s principal subsidiaries will include HDFC Securities, HDB Financial Services, HDFC Asset Management, HDFC ERGO General Insurance, HDFC Capital Advisors and HDFC Life Insurance.

Under the share swap plan, the shareholders of HDFC will get 42 shares of HDFC Bank (each with a par value of Rs 1) in exchange for 25 shares owned by HDFC Limited (each with a par value of Rs 2). The share(s) owned by HDFC Limited in HDFC Bank will be extinguished, in accordance with the Plan.

HDFC Bank will be 100 percent owned by the public shareholders and the existing HDFC shareholders will own 41 percent of HDFC Bank. HDFC’s commercial paper will be in the name of HDFC Bank from July 7, Non-Convertible Notes on July 12, and the warrants will be in the name of HDFC Bank from July 13.

After the merger, HDFC Bank will have a loan book of Rs 22 crore with 8,344 branches. The combined staff strength will be 177,239. On April 4, 2022, the entities decided to merge as regulatory arbitration narrowed between a bank and a non-bank financial company. The merger was expected to be completed within 15-18 months.

HDFC Bank said the combined entity brings together the important complementarities that exist between both entities and is poised to create meaningful value for various stakeholders.

While announcing the merger last year, HDFC Bank sought several regulatory exemptions from the RBI. In March, the Reserve Bank of India (RBI) allowed HDFC Bank to consider one-third of HDFC loans outstanding in the first year of consolidation to meet priority sector lending targets. The remaining two-thirds of HDFC’s portfolio over the next two years will be considered equally.

However, the bank has not received regulatory approval for more time to meet the cash reserve ratio and the statutory liquidity ratio. HDFC, being an NBFC, does not have to comply with CRR/SLR but the bank is required to set aside funds for HDFC loans.