HDFC Bank, India’s largest private lender, is buying its largest shareholder in a $40 billion deal, the country’s largest ever, to create a financial services behemoth that can better meet surging credit demand.
HDFC Bank’s collaboration with housing finance giant HDFC Ltd, which controls around 21% of the lender, will boost the bank’s 68 million customers and dramatically extend its home loan portfolio, while also allowing for larger loans.
It will also help HDFC Bank close the gap with the state-run lender and bigger rival State Bank of India, while increasing competition in the home credit market as the pandemic’s effects fade.
Several observers say that the merger’s timing caught everyone off guard, and that it is a win-win situation for all parties.
“Clients will gain the most from the synergy created by the combination of HDFC Limited and HDFC Bank Limited, whether they are bank account holders, mortgage customers, or insurance customers,” In an interview with Zee Media, Vibha Padalkar, Managing Director and Chief Executive Officer of HDFC Life, said.
In terms of total assets, the merger, which is anticipated to be completed in 18 months, would dramatically increase the bank’s advantage over rival private sector peers ICICI Bank Ltd. and Axis Bank Ltd.
According to data as of December 31, the amalgamated HDFC Bank will have a loan book of Rs 17.9 trillion, far ahead of ICICI Bank’s Rs 8.14 trillion and Axis Bank’s Rs 6.65 trillion.
At the end of December, India’s largest lender, State Bank of India (SBI), had total loans of Rs 26.64 trillion.
The merger comes as the Reserve Bank of India (RBI) continues to tighten non-bank lending regulations in order to bring them up to par with banks, leaving giant shadow banks with little incentive to operate independently.
In the midst of a surge in demand for house loans, the combined firm will benefit from adding a huge portfolio of mortgages.
(With inputs from agencies)
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