HDFC merger biggest in India Inc history
HDFC Bank's planned merger with its parent Housing Development Finance Corp will boost the private bank's market share and diversify its revenues, S&P Global Ratings said on Monday.
This comes after the boards of HDFC Bank and HDFC on Monday approved the merger of the mortgage lender into the bank. They also approved the merger of HDFC Investments Ltd and HDFC Holdings Ltd into and with HDFC Ltd, as per disclosures made to bourses.
The bank said the tentative date of completion of the entire merger will be JulDec 2023.
"Our ratings on HDFC Bank (BBB-/Stable/A-3) remain constrained by the sovereign credit rating on India," the rating agency said.
According to the note, the merger is likely to result in significant market share gains for HDFC Bank, given the parent company is the largest financier of mortgage in India. It will raise HDFC Bank's loans by 42% to 18 trln rupees, increasing the bank's market share to about 15% from 11% currently.
While HDFC Bank will remain the second-largest bank in India post the merger, S&P said it would be twice the size of ICICI Bank, the third-largest bank in the country.
HDFC Bank's larger balance sheet could enhance its wholesale lending opportunities, the agency added.
The merged entity will have one-third of its portfolio in mortgage loans, compared with a reported 11% now, as per the note. HDFC's mortgage portfolio largely comprises individual housing loans and such loans tend to be granular, S&P said.
"Moreover, HDFC Ltd's insurance, asset management, and securities subsidiaries will further diversify the combined entity's revenue profile," the report said.
The rating agency said that the combined entity's earnings could improve over the next three to five years, and the merger would provide the bank with profitable cross-selling opportunities to HDFC's large pool of customers, especially for high-yield products such as unsecured loans. It would also generate more fee income from insurance and investment products.
The merged entity will benefit from economies of scale and an improved ability to raise funds at competitive rates.
It could also leverage HDFC Bank's digital capabilities and distribution network to drive operational efficiencies, and the efficiency gains will depend on smooth integration of systems and processes, said S&P.