In a historical event for the Indian financial landscape, Housing Development Finance Corporation Limited (HDFC Ltd), India's leading housing finance company, and HDFC Bank Ltd, the country's largest private sector lender, have embarked on a merger. As of July 1, 2023, the two companies have begun the amalgamation process, marking the culmination of plans initially announced in April 2022.

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Key Elements of the Merger

One of the most significant outcomes of the merger is the threshold limit alteration for TDS deduction for HDFC Ltd customers. Previously set at Rs 5,000, the merger has raised this limit to Rs 40,000 for existing HDFC Ltd customers, with the limit rising to Rs 50,000 for senior citizens.

Regarding fixed deposit (FD) customers, the merger has given them the option of either withdrawing their funds by breaking the FD or renewing their FD. HDFC customers will also enjoy insurance coverage on their deposits post-merger.

Schedule of Transfers and Allotments

Key dates concerning the transfer of assets and allotment of shares were defined as part of the merger process. The Board of Directors of HDFC Bank, in consultation with HDFC Ltd, has set July 13, 2023, as the date for determining the shareholders of HDFC Ltd who would be issued and allotted shares of HDFC Bank. The same date has been chosen for the continuation of HDFC Ltd's warrants in the name of HDFC Bank.

The transfer of non-convertible debentures (NCDs) from HDFC Ltd to HDFC Bank is scheduled for July 12, 2023. The transfer of these debentures received approval from both the BSE and NSE stock exchanges, clearing the path for the completion of the merger. The transfer of commercial papers from HDFC Ltd is set for July 7.

Impact on the Market and Future Plans

The merger will result in a behemoth with over 120 million clients, more than 8,300 branch locations, and a workforce of over 177,000. Despite expected reductions in net interest margins, HDFC Bank anticipates maintaining post-merger return on assets of 1.9 per cent to 2.1 per cent for 2023-24. The bank also plans to continue focusing on deposit mobilisation, with plans to add over 1,500 branches annually for the next 4-5 years.

Upon completion, HDFC Bank will be fully owned by public shareholders, with existing HDFC shareholders owning 41 per cent of the bank. The merged entity is expected to trade under the HDFC Bank ticker before July 20, 2023.

This merger, touted as the largest in the history of Indian finance, marks a significant milestone in the growth trajectory of the nation's banking and finance sector.

(Edited by : Sudarsanan Mani)

First Published:Jul 1, 2023 2:11 PM IST