HDFC-HDFC
BANK MERGER
A Success or a Failure?
1. Introduction- The need for two separate entities
2. Why Merge?
Agenda
3. Pre Merger vs Post Merger
4. Impact on shareholding pattern
5. How markets reacted!
6. Conclusion
Fundamental Difference between
the two (Pre-merger scenario)
HDFC Bank HDFC Ltd.
Registered as a Bank. Registered as an NBFC.
Known for wide-range of products Expertise in housing finance and
and services. mortgage lending.
Access to low-cost funds through No access to low-cost funds as
Current and Savings Account. NBFC cannot provide Current
Regulated by RBI through SLR and and Savings Accounts.
CRR reserve, as well as a fixed % is No such regulations apply, they
mandated to be invested in can lend all the money they have.
government securities.
About the deal
The twin entities first announced the decision to merge on April 4, 2022,
after getting approvals from the board, shareholders, and regulators.
HDFC merged with HDFC Bank effective from July 1, 2023.
This merger of India’s largest housing finance company with the country’s
largest private sector bank has created the third-largest entity in India, in
terms of market capitalization.
This all-stock merger resulted in the creation of the fourth-largest bank in
the world valued at $172billion after JPMorgan Chase, the Industrial and
Commercial Bank of China and Bank of America.
With this merger, HDFC’s shareholders will get HDFC Bank’s 42 shares for
every 25 shares of HDFC.
While existing shareholders of HDFC will have 41% ownership of HDFC
Bank, HDFC Bank will become an entirely publicly owned bank.
Why Merge?
(From HDFC Ltd. Perspective)
Huge Distribution Network Low Cost Funds
Easy access to CASA Deposits.
HDFC Bank will enable seamless (Current and Savings Account)
delivery of home loans and leverage
on the large base of over 68 million
customers of HDFC Bank Increased Underwriting
The Bank has a presence in more Appetite
than 3,000 cities/town through its
It will enable HDFC to underwrite
6,342 branches, with about 50% of
loans with a larger ticket size - an
these branches in semi-urban/rural
opportunity to write infrastructure
geographies in the country
loans (a need in our nation)
Why Merge?
(From HDFC Bank Ltd. Perspective)
Decreased Exposure to Penetrate the housing
Unsecured Loans loan segment
Since housing loans are usually At present, the company has
collateral based, this would 11 per cent exposure to
enable hdfc bank to have a mortgages, and post-merger,
cushion against their exposure the company would have 33
to unsecured loans. per cent exposure (based on
Dec 31, 2021 numbers)
The merger is expected to create synergies of over $1.2 billion annually. This will be
achieved through cost savings, revenue synergies, and cross-selling opportunities.
Operational Synergies
Comprehensive Product
Offering
Increased Scale
Transformational into a
financial conglomerate
Synergies
Financial Synergies
Balance Sheet Resilience
Lower Cost of Funds
Change in Regulatory Structure
of the Nation
1995 2023
CRR 15% 4.5%
Mandate to
invest in
government 35-38.5% 18%
securities
Shareholding Pattern (Pre-Merger)
Shareholding Pattern (Post-Merger)
How Market reacted?(Post Merger News)
HDFC
Bank Ltd.
HDFC Ltd.
How Market reacted?(Post Merger)
Key Financial Changes (HDFC Bank)
Net profit rises by 6 percent YoY to ₹15,980
crore.
NII up 6.7 percent YoY at ₹ ₹27,385 crore.
HDFC Bank Operating profit up 30.5 percent YoY to
Q2 Results: 22,694 crore.
The bank's CASA ratio stands at 37.6 percent.
Key Operating expenses surge by 37.2 percent YoY
highlights to ₹15,399 crore.
Net revenue increased by 114 percent YoY to
(Post Merger) ₹66,317 crore.
Gross NPA stood at 1.34 percent, net NPA
increased to 0.35 percent.
Conclusion
In conclusion, the merger between HDFC and HDFC Bank is estimated to
bring substantial benefits.
The new entity now has the capacity to underwrite larger ticket loans,
including infrastructure loans, thereby boosting credit flow in the economy.
It also aims to enhance home loan offerings to a broad customer base and
accelerate the pace of credit growth.
The merger has marked the beginning of a new chapter in HDFC Bank’s
history, promising improved services for low- and middle-income groups
and potential for significant economic impact.
However, the long-term success of this merger in delivering on its promises
remains to be seen, making it a pivotal moment in India’s corporate
landscape.
Thank you!
Key Financial Changes
Loan Book- The loan book or advances of the merged entity is expected to
increase by 38.77 percent to Rs 22.21 lakh crore. Prior to merger, these
numbers were at Rs 16.00 lakh crore as on March 31, as per investor
presentation of bank.
Deposit- The deposit of the bank will be at Rs 18.84 lakh crore after the
merger with HDFC on July 1.
The merger resulted in a Rs. 25.61 lakh crore balance sheet, making it the
second-highest after SBI.
As a result of the merger, the cost to income ratio of HDFC Bank will drop
sharply from 40.4% to 36% immediately and eventually to 32%. That is
because HDFC Ltd has a very low cost to income ratio of just about 9.2%.
That is likely to help boost the profitability of HDFC Bank post the merger.
The combined entity will see the return on assets (ROA) static at around 2.1%
post the merger but the return on equity (ROE) is likely to improve by nearly
150 bps post the merger. HDFC Bank has a much better ROE than HDFC Ltd
but the gains will come from cancellation of equity post the merger.
References
https://www.hdfcbank.com/personal/about-us/news-room/press-release/2022/q2/hdfc-limited-and-hdfc-bank-limited-announce-a-
transformational-merger
https://www.valueresearchonline.com/stories/50671/financial-behemoths-hdfc-bank-and-hdfc-ltd-come-together/
M&A Research Article by NIshith Desai Associates
https://finance.yahoo.com/quote/HDFCBANK.NS?p=HDFCBANK.NS
