Why are HDFC Limited, HDFC Bank merging?

HDFC Bank and HDFC Ltd on Monday announced the merger of the two entities, setting the stage for one of the biggest deals in the Indian financial sector. Housing Development Finance Corporation (DGFC) announced that its board has approved a transformational merger of its wholly owned subsidiaries HDFC Investments Limited and HDFC Holdings Limited with HDFC Bank Limited.

The Indian equities markets' key indices, Sensex and Nifty, surged by more than 2 per cent on Monday after HDFC and HDFC Bank announced a surprise merger deal. However, the merger of India's largest mortgage lender HDFC with private sector lender HDFC Bank will be good for the economy and it is expected to get the required regulatory approvals in 15 to 18 months.

What is the plan of merger?

As per the transaction structure, HDFC Limited, India’s largest housing finance company with Assets Under Management worth Rs 5.26 trillion and a market cap of Rs 4.44 trillion will merge with HDFC Bank, India’s largest private sector bank by assets with a market capitalisation of Rs 8.35 trillion.

The subsidiary or associates of HDFC Limited will also be transferred to HDFC Bank

What is the share swap ratio of the transaction?

Shareholders of HDFC Limited, as on record date, will receive 42 shares of HDFC Bank for 25 shares of HDFC Limited.

How will the ownership change?

Post the merger, HDFC Limited’s shareholding in HDFC Bank will be extinguished and HDFC Bank will be 100 per cent owned by public shareholders. Existing shareholders of HDFC Limited will own 41% of HDFC Bank.

How will the merger benefit the two entities?

While this will improve the ability to cross-sell products to a larger customer base, the move will help them leverage their distribution across urban, semi-urban and rural geographies. The combined balance sheet of Rs 17.87 trillion and Rs 3.3 trillion net worth will enable larger underwriting at scale.