After the proposed merger of HDFC Ltd with HDFC Bank, the size of HDFC Bank will be double that of its rival ICICI Bank. At the same time, its market share will increase and the sources of revenue will be diversified. S&P Global Ratings said these things in a note on Monday.
India’s largest housing finance company HDFC is going to merge with the country’s largest private bank HDFC Bank. This will be the biggest ever merger in the corporate history of the country and HDFC Bank will emerge as a giant bank after this.
After the completion of this merger, all 100% shares of HDFC Bank will be with the public shareholders. Also the existing shareholders of HDFC Ltd will hold 41 per cent stake in the bank.
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S&P said that HDFC Limited is the largest housing finance company in the country. In such a situation, after the merger, HDFC Bank will help in increasing the market share. The merger will increase HDFC Bank’s loan book by 42 per cent to Rs 18 lakh crore (USD 237 billion), thereby increasing the bank’s market share from 11 per cent to 15 per cent.
“After the merger, HDFC Bank will continue to be the second largest bank in the country, but will be nearly twice the size of the country’s third largest bank, ICICI Bank Ltd. From HDFC Bank’s large balance sheet,” S&P said in a note. Opportunities for giving loans of larger sizes may increase. At present, the state-owned SBI is the largest bank in the country.
Before the merger, HDFC and HDFC Bank will have to fulfill several regulatory and legal conditions, which may take around 12 to 18 months.
“The proposed merger of its parent company HDFC Ltd with HDFC Bank will increase the market share of the bank and diversify its revenues,” S&P said. It said that after the merger, about one-third of HDFC Bank’s income will come from mortgage loans, which is currently 11 per cent.
S&P said that the earnings of the joint company may improve in the next three to five years. Also, the merger will give the bank access to a larger segment of HDFC’s customers, to whom it can cross-sell the products to make a profit.