Global Courant
A branch of HDFC Bank in Mumbai, India, on Friday, April 14, 2023.
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India’s largest private lender HDFC Bank has completed the merger with Housing finance companythe nation’s largest mortgage lender, in a deal that pits the new entity against the world’s largest banks.
The merger became effective July 1, subject to shareholder and regulatory approvals.
The merged entity will become the world’s fourth largest bank by market capitalization in the world – behind JPMorgan Chase, Industrial and Commercial Bank of China and Bank of America, said Soumya Rajan, CEO and founder of Mumbai-based Waterfield Advisors.
“This is a defining event in our journey and I am confident that our combined strength will enable us to create a holistic financial services ecosystem,” HDFC Bank CEO Sashi Jagdishan said Friday.
“As we navigate the road ahead, we will embrace challenges as opportunities, learn from our experiences and strive to be the benchmark for success and integrity in the financial services industry,” he said in a statement. press release.
Details of the merger
The merger took place on Saturday, about 15 months after the deal was first announced.
HDFC Bank announced last April that it will acquire its parent Housing Development Finance Corporation, India’s largest housing finance lender, in a $40 billion all-stock deal.
The merger went smoothly because of the “common culture” shared by both companies, said Nilesh Shah, general manager at Kotak Mahindra Asset Management.
HDFC shareholders will receive 42 shares of HDFC Bank for every 25 shares they own, and HDFC will cease trading in the Indian stock market on July 13.
The new entity now has a market cap of around $172 billion, Rajan said, adding that it will become India’s second most valued company after dependent industries.
synergies
“These two powerhouses coming together should have a material impact on the growth and expansion of the customer base in the coming days,” Shah told CNBC.
“So for them, one plus one should make 11 and not two or three. They need to leverage these synergies to create an even better organization than what’s already been created,” he said.
In a presentation to HDFC investorsthe mortgage lender outlined synergies including access to lower borrowing costs, operational efficiencies and a broader distribution network for HDFC.
There will also be cross-selling opportunities as 70% of HDFC’s customers do not hold a bank account with HDFC Bank, according to the presentation. In addition, of HDFC Bank’s 71 million customers, “only 5% have a mortgage from other mortgage lenders and only 2% have a mortgage from HDFC.”
Before the two entities merged, HDFC was the “organization that provided most people with mortgages and housing loans in India, which they could never have wished for in the past,” says Rajan of Waterfield Advisors.
The merger was “inevitable” and it now gives customers access to a range of services and a larger distribution network, she added.
Will there be more M&A?
Both analysts agreed that more such mergers would come from India.
“In this case, you had the case of a mortgage lender, and you had a case of a pure bank, and being able to find the synergies there. Similarly, if there are other standalone entities that specialize in specific services — which could be complementary to a bigger bank – I think those will also come into play (in a merger),” she added.
Shah said HDFC Bank is not part of the MSCI Emerging Market Index, but may now be included.
The merger gives the new entity a “high-growth opportunity” for global investors looking to buy into India’s banking sector, Shah stressed.
“It was always a non-index bet, but nevertheless investors felt comfortable owning it. Being part of the index now will really draw a lot more new investors to HDFC Bank,” said Shah.
Shares of HDFC Bank are up 4.5% year-to-date, while shares of HDFC are up 7% over the same period, according to data from FactSet.
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