HDFC Bank, HDFC rally up to 10% as board approves merger

Housing Development Corporation Limited (HDFC) and HDFC Bank rallied up to 10 per cent on the BSE in Monday’s intra-day trade after their respective boards approved the merger of HDFC into HDFC Bank.

As part of the deal, shareholders of HDFC Ltd will receive 42 shares of the bank for 25 shares held. Existing shareholders of HDFC Ltd will own 41 per cent of HDFC Bank. Shares held by the housing finance company in the lender will be extinguished, making HDFC Bank a full-fledged public company, reports suggest.

Merger of India’s largest Housing Finance Company, 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 in the economy, HDFC Bank said in an exchange filing.

Shares of HDFC and HDFC Bank rallied 10 per cent to Rs 2,696 and Rs 1,656.90 on the BSE in intra-day trade today. At 09:20 am, HDFC traded 7 per cent higher at Rs 2,625 and HDFC Bank was up 6 per cent at Rs 1,598. In comparison, the S&P BSE Sensex was up 1.2 per cent at 59,972.

“The board of directors of HDFC Bank, at its meeting held today, on April 04, 2022, has inter alia approved a composite scheme of amalgamation for the amalgamation of HDFC Investments Limited and HDFC Holdings Limited, into and with Housing Development Finance Corporation Limited ("HDFC Limited"); and HDFC Limited into HDFC Bank,” the release stated.

HDFC Holdings Limited and HDFC Investments Limited are non-deposit accepting non-banking finance companies, registered with Reserve Bank of India (RBI), engaged in the business of investments in stocks, shares, debentures and other securities. Both are unlisted companies.

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.

HDFC is a significant provider of home loans to the Low Income Group (LIG) and Middle Income Group (MIG) segments under the affordable housing initiatives of the Government of India. Access to housing finance for this category would be improved further on account of low cost funds available with HDFC Bank, the company said.

The housing loan market is at the cusp of a strong up-cycle, with all-time high favorable industry dynamics and provides a steady secured asset class with very attractive risk adjusted returns, the release stated.