HDFC, HDFC Bank merger to create third-largest company in India

The third-largest entity in India is likely to be created by the merger of the two banks.

Following a union of subsidiaries, the company will amalgamate with a bank. In a separate exchange filing, a similar announcement was made by the bank.

The proposed transaction would create meaningful value for various stakeholders including respective shareholders, customers, employees, as the combined business would benefit from increased scale, comprehensive product offering, balance sheet resilience, and the ability to drive synergies across revenue opportunities.

For every 25 shares of the non-banking lender held by the shareholders, they will get 42 shares of the bank.

The market value of the merged entity will be close to Rs 12,700 cr. A 41 percent stake in the merged entity will be held by HDFC.

Following the announcement, the bank jumped close to 10 percent.

This is a merger of equals. Over the last few years, various regulations for banks and NBFCs have been simplified.

The merger will create the biggest stock in the Nifty50 index with a weight of 11.9 percent, according to analysts. The weight of the bank on the index was 8.4 percent as of March 31.

The analysts said that the merger benefits the parent because of the rise in costs of funds for non-banking entities. With interest rates expected to rise, the merger reduces the cost of funding.

The move was forced by the weak stock performance of the two banks over the past 18 months even as the broader equity market surged in the COVID bull run, according to some market participants.

Prior to the merger, the stock price of HDFC Bank was near its 52 week low while the stock price of the other bank was barely changed.

At 9:37, shares of HDFC were up 10.75 percent at Rs 2,716 on the National Stock Exchange, while those of HDFC Bank were higher by 9 percent at Rs 1,641.