The merger of Housing Development Finance Corporation with HDFC Bank is in the final stages and will be effective July 1, HDFC Chairman Deepak Parekh said on Tuesday.

“The boards of HDFC and the private bank will meet on June 30 to clear and approve the merger. It will be the last board meeting of HDFC,” Parekh said at an event to launch the HT Parekh Legacy Centre.

Accordingly, shares of HDFC will be delisted from July 13 and shares of the merged entity will start trading from July 17 at most, Vice Chairman and CEO Keki Mistry said, adding that the “idea is to minimise the period of time when HDFC shares don’t trade on the market.”

Post-news, shares of both HDFC and HDFC Bank surged 2.3 per cent. Shares of HDFC ended 1.3 per cent higher at ₹2,756.60 and those of HDFC Bank closed 1.4 per cent higher at ₹1,658.25 on the NSE.

HDFC Bank will allocate 42 new shares for every 25 shares of HDFC held by over 740,000 shareholders.

Also read
REUTERS

HDFC, HDFC Bank shares climb

Merger integration

About 90 per cent of employees of HDFC, which includes all except those over or nearing the retirement age of 60 years, will be absorbed by HDFC Bank at the same salary grade, Parekh said.

“They will continue using our people to work on housing and mortgage loans. That continuity will be there; branches and the people who do the loans will continue. The only thing that will change maybe the sanctioning authority,” he said, adding that the bank needs these employees because its own staff does not have mortgage expertise, including knowledge of the builder community and real estate prices.

While initially HDFC’s employees will focus on mortgage loans, HDFC employees and its branches could eventually start offering other banking services too, he said, adding that all branches will be retained for the time being but some small branches may be reclassified as the bank’s service centres.

He added that HDFC’s depositors will continue to get the rate of interest committed by the housing financier for the tenure of their deposits.

Merged HDFC Bank

“The advantage from an integration standpoint is that the two organisations don’t have similar products. The bank does everything other than housing, and HDFC only does housing. And therefore the commonality of roles is very limited to certain corporate functions, so that makes the process of integration a lot simpler,” Mistry said, adding that effective the date of the merger, HDFC’s customers will be given the choice to either shift to the bank’s benchmark rates or continue at existing HDFC rates.

The merger is expected to add ₹6 lakh crore to HDFC Bank, taking the total balance sheet size of the merged entity to about ₹18 lakh crore.

“One of the biggest strengths that I see in the merger with the bank is that the retail loan portfolio, which was of 12–18 months, will now be of 5–6 years,” Parekh said, explaining that this is because HDFC gives loans of up to 15 years, whereas the bank only does short-term consumer loans at the moment.

Each and every branch of HDFC Bank will start selling home loans, which is something that was not being done earlier, and this will help the bank grow the mortgage book further, he said, adding that HDFC currently gets about 70,000–80,000 individual loan applications per month.

Mistry added that housing demand continues to remain strong, and given the demographics in India.

Mistry said that of the individual loans disbursed till date, HDFC has cumulatively written off only 0.04 per cent of loans. Combined with the strong asset quality of the bank, the portfolio quality of the merged entity is expected to remain robust.

“Over the years, we’ve operated at a very low cost structure,” he said, adding that over the past two decades, the cost-to-income ratio has been in single digits—one of the best globally.

Related Topics