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Morgan Stanley said the proposed merger between Housing Development Finance Corp (HDFC) and HDFC Bank would be earnings per share (EPS)-accretive in the first full year (F25). It benefits both HDFC Bank and HDFC through access to long-tail loans and funding, respectively, the brokerage said.

The HDFC twins on Monday announced a merger, subject to shareholder and regulatory approvals, that is expected to be closed within 18 months.

Morgan Stanley is of the view that the return on equity (RoE) will move lower in the near term owing to capital accretion. It, however, expects loan growth acceleration to drive 18 percent RoE by FY27.

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The HDFC-HDFC Bank combined will be one of the largest consumer lenders in the emerging markets in Asia, according to the brokerage.

Morgan Stanley mentioned multiple synergies from the merger:

Access to secured and long tenor retail mortgage products for HDFC Bank, which can be levered more in a bank structure

Higher cross-selling capability for HDFC Bank to mortgage customers

Better funding franchise for HDFC

Likely even greater focus on subsidiary product cross-selling

Greater operational and distribution leverage, particularly given HDFC Bank's strong expansion in interior India over the past 10 years

Likely reduction in holding company discount

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(Edited by : Akanksha Upadhyay)