On global stage today, $180 bn banking giant

The boards of directors of HDFC and HDFC Bank have approved the merger of the two with effect from July 1, 2023, both companies informed the stock exchanges late on Friday. Following the amalgamation, HDFC Bank would be the fourth-largest bank in the world with a market capitalisation of Rs 14.73 trillion, or nearly $180 billion.

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

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

Ahead of the effective date of the merger, HDFC Holdings and HDFC Investments were amalgamated into HDFC. After the merger, key HDFC Bank subsidiaries will include HDFC Securities, HDB Financial Services, HDFC Asset Management, HDFC ERGO General Insurance, HDFC Capital Advisors, and HDFC Life Insurance.

According to the share swap scheme, shareholders of HDFC will receive 42 shares of HDFC Bank (each of face value of Rs 1) for 25 shares held in HDFC Limited (each of face value of Rs 2). Equity share(s) held by HDFC Limited in HDFC Bank will be extinguished, according to the scheme.

HDFC Bank will be 100 per cent owned by public shareholders and existing shareholders of HDFC will own 41 per cent of HDFC Bank. The commercial papers of HDFC will be in the name of HDFC Bank from July 7, non-convertible debentures July 12, and the warrants will be in the name of HDFC Bank starting July 13.

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

HDFC Bank said the merged entity brings together significant 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 dispensations from the Reserve Bank of India. In March, the RBI allowed HDFC Bank to consider a third of the outstanding HDFC loans in the first year of the merger for meeting priority sector lending targets. The remaining two-thirds of the portfolio of HDFC will be considered over the next two years equally.

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