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A merger, which was in the making for years, has finally fructified in a $40-billion deal to create a banking behemoth. The country’s largest housing finance company and the biggest private sector bank announced on Monday that their boards have approved an all-stock amalgamation of HDFC Ltd into HDFC Bank, subject to regulatory approvals. At present, HDFC is the parent company of the bank. The merger will be a two-step process wherein, HDFC Investments Ltd and HDFC Holdings Ltd, which are wholly-owned subsidiaries of HDFC, will be merged with and into HDFC. Then HDFC will be merged with HDFC Bank. HDFC and its two subsidiaries currently hold 21 per cent of the share capital of HDFC Bank. HDFC shares will be extinguished after the merger. The entire process, including getting approvals from shareholders of HDFC and HDFC Bank, Reserve Bank of India (RBI), stock exchanges, Securities and Exchange Board of India (Sebi) will take 15 to 18 months. Till all the approvals are in place, both HDFC Ltd and HDFC Bank will operate as separate entities. HDFC Bank is a domestically important systemic bank (D-SIB) from RBI’s point of view. The share exchange ratio for the amalgamation of the corporation with and into HDFC Bank will be 42 equity shares of face value of Re 1 each of HDFC Bank for every 25 fully paid-up equity shares of face value of Rs 2 each of the corporation. Post the merger, HDFC Bank will be 100 per cent owned by public shareholders and existing shareholders of HDFC Limited will own 41 per cent of HDFC Bank. Deepak Parekh, Chairman, HDFC Ltd, said, “After 45 glorious years of providing home loans to over 9 million customers, the time is right for HDFC to find a new home. Our new home is with our family, with our own people, but it’s bigger, better and significantly more promising”. One of the triggers for the deal was narrowing of regulatory arbitrage that existed between the banks and NBFCs by harmonising the regulations governing the NBFCs with that of banks. RBI has also been encouraging large NBFCs to convert into banks. The gap in liquidity requirements between a bank and NBFCs has also been reduced.
As a result, it is going to be difficult for NBFCs to operate and maintain the same levels of profitability as they have done in the past.
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