The board of Housing Development Finance Corporation (HDFC) has announced that its board at its meeting held today has approved a composite scheme of amalgamation, for the merger of into and with HDFC Limited into HDFC Bank, and their respective shareholders and creditors.
"We wish to inform you that the Board of Directors of Housing Development Finance Corporation Limited ("Corporation") at its meeting held today i.e. April 4, 2022, after considering the respective recommendations and reports of the Audit and Governance Committee of Directors of the Corporation and the Committee of Independent Directors of the Corporation, has inter alia approved a composite scheme of amalgamation ("Scheme") for the amalgamation of: (i) HDFC Investments Limited and HDFC Holdings Limited, wholly-owned subsidiaries of the Corporation, with and into the Corporation and (ii) the Corporation with and into HDFC Bank Limited ("HDFC Bank")," the company said on Monday.
The share exchange ratio shall be 42 equity shares, credited as fully paid up, 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.
The board has also approved the amalgamation of HDFC Investments Limited and HDFC Holdings Limited.
HDFC on Monday announced that it will merge with HDFC Bank, with a share merger ratio of 42 shares of HDFC Bank to 25 shares of HDFC. The proposed transaction will enable HDFC Bank to build its housing loan portfolio and enhance its existing customer base. Post-the above scheme, HDFC Bank will be 100 percent owned by public shareholders and existing shareholders of HDFC will own 41 percent of HDFC Bank.
Santosh Meena, Head of Research, Swastika Investmart, said, For HDFC Ltd. the biggest gain will be access to well-diversified low-cost funding and a huge customer base of HDFC Bank Ltd. Earlier NBFC’S used to enjoy regulatory arbitrage vis-à-vis banks, but the regulatory authorities have harmonized the same, thus making this merger necessary and creating a competitive advantage over its peers.
The proposed merger will enable HDFC Bank to build its housing loan portfolio. The housing loan market is at the cusp of a strong up-cycle along with tailwinds for the real estate sector, and it provides a steady secured asset class with very attractive risk-adjusted returns. This will increase the balance sheet size of the merged entity enabling it to underwrite large ticket size loans.
Overall this is a marriage made in heaven, creating increased scale, comprehensive product offering, balance sheet resiliency and the ability to drive synergies across revenue opportunities, operating efficiencies and underwriting efficiencies, hence benefiting stakeholders of both the companies.
