HDFC announces merger with HDFC Bank, shares surge

New Delhi, April 4

Housing loan major Housing Development Finance Corporation (HDFC) on Monday said its Board has approved merger of its wholly owned subsidiaries HDFC Investments and HDFC Holdings with HDFC Bank.

Upon the merger scheme becoming effective, the subsidiaries or associates of HDFC will become subsidiaries or associates of HDFC Bank, it said in a regulatory filing to the exchanges.

The proposed transaction is to create a large balance sheet and net-worth that would allow greater flow of credit into the economy.

It will also enable underwriting of larger ticket loans, including infrastructure loans, an urgent need of the country, said the filing.

The merger of India's largest housing finance company (HFC) HDFC with the largest private sector bank in India HDFC Bank will enable seamless delivery of home loans and leverage on the large base of over 68 million customers of HDFC Bank and inter alia improve the pace of credit growth, the filing added.

"Post the combination, HDFC Bank's customers will be offered mortgages as a core product in a seamless manner. HDFC Bank will also leverage the long tenor mortgage relationship to offer varied credit and deposit products enabled through better insights through-out the customer life-cycle," it said.

The Boards of the two entities believe that the merger will create long term value for all stakeholders, including customers, employees and shareholders.

The amalgamation of the two entities will provide further impetus to the Government's vision of "Housing for All", it said.

HDFC Bank has a presence in more than 3,000 cities/towns through its 6,342 branches, with about 50 per cent of these branches in semi-urban/rural geographies in the country.

Leveraging this distribution might, the proposed transaction would broaden the home loan offering, synonymous with the national objective of Pradhan Mantri Awas Yojana that intends to provide housing for all.

"This is a merger of equals. We believe that the housing finance business is poised to grow in leaps and bounds due to the implementation of RERA, infrastructure status to the housing sector, government initiatives like affordable housing for all, amongst others," said Deepak Parekh, Chairman of HDFC.

"Over the last few years, various regulations for banks and NBFCs have been harmonised, thereby enabling the potential merger. Further, the resulting larger balance sheet would allow underwriting of large ticket infrastructure loans, accelerate the pace of credit growth in the economy, boost affordable housing and increase the quantum of credit to the priority sector, including credit to the agriculture sector."

Reacting to the merger news, shares of HDFC and HDFC Bank rose as high as 14 per cent and 11 per cent, respectively, during the opening session.