Tag: Housing Development Finance Corporation Ltd

India’s IDFC First Bank says merger will boost credit growth

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IDFC First bank signage is seen outside a branch in Mumbai, India, 04 July, 2023. IDFC First Bank merges with IDFC Limited. 155 shares of IDFC First Bank will be alloted for 100 shares of IDFC according to an Indian media report.

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India’s IDFC First Bank expects to see robust credit growth following its recent merger, according to managing director and CEO V. Vaidyanathan.

Last week, IDFC First Bank said its board had approved its merger with IDFC Ltd., the latest in a wave of consolidation in India’s financial sector.

This comes just days after a $40 billion mega merger between India’s largest private lender HDFC Bank with Housing Development Finance Corporation, the country’s biggest mortgage lender.

Vaidyanathan said, as a country, India is on a “massive trajectory,” which holds immense growth potential for the merged entity in the near term.

“We are insiders of this country and we can see for ourselves on day-to-day basis how the country is growing,” he told CNBC’s “Street Signs Asia” on Tuesday.

“For India’s credit market, let me say about a 15% credit growth would be a fair expectation in the near future. And for our bank, a 25% credit growth would be a fair expectation with stable asset quality.”

Last week, IDFC First Bank said the proposed merger would boost the bank’s standalone book value by 4.9% compared with its financials as of March 31. It also said it aims to increase its balance sheet by 20% to 25% per year in the near to medium term.

“The merger will lead to simplification of the corporate structure of IDFC FHCL, IDFC Limited and IDFC FIRST Bank by consolidating them into a single entity and will help streamline the regulatory compliances of the aforesaid entities,” the release added.

Vaidyanathan noted the bank has key “strategic goals” and since the “Indian market is so large and wide and we’re still a tiny player, we think that we can grow at a good rate for a long time to come with a holding like this.”

Still, the deal is subject to approvals from India’s key regulatory authorities, including the Reserve Bank of India, Securities and Exchange Board of India and India’s stock exchanges.

Analysts have noted the recent merger will not dent IDFC First Bank’s prospects for inclusion in the MSCI standard index for August.

Inclusion in the index “would be a big deal,” said Vaidyanathan. “Whether we make it now or later in our mind, we have no doubt. We are very confident and frankly, it’d be an honor to be part of MSCI index for us,” added the CEO.

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July 11, 2023
HDFC Bank director says Indian mega merger won’t face ‘insurmountable challenges’

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The merger between HDFC Bank and HDFC now makes the entity the world’s fourth largest bank.

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The merger between India’s HDFC Bank and the Housing Development Finance Corporation (HDFC) will increase the entity’s customer base and provide more opportunities for cross-selling, the non-executive director of HDFC Bank told CNBC.

HDFC, India’s largest mortgage lender, merged with HDFC Bank, the country’s biggest private lender, in a $40 billion deal which took effect on July 1.

“A merger between the two entities has always made an immense rationale,” Keki Mistry said, adding that the move will improve the bank’s mortgage portfolio and attract more customers with a range of financial services.

“Customers will now have the opportunity to receive customized products catering to their needs which only banks in India could offer,” Mistry said in an email to CNBC. “From the Bank’s point of view, it offers a massive opportunity to cross sell.”

Mortgage penetration

“One of the critical drivers of this merger is maximizing growth potential. The potential to deepen credit markets and mortgages in particular, in India is immense,” Mistry said.

HDFC Bank has around 83 million customers but only 2% have a housing loan with HDFC. An additional 5% of the bank’s customers have a housing loan from other lenders, he said explaining that it means 93% of HDFC Bank’s customers do not have a home loan.

This presents a “significant opportunity to cross sell and a potential to tap into the customer base that have not taken a housing loan at all,” the director said, adding that HDFC Bank will now be able to offer mortgage services.

Mortgage penetration in India is “extremely low” and only accounts for approximately 11% of its GDP.

That’s much lower than 26% in China, and between 20% to 40% in South East Asia, HDFC said. Most developed markets have more than 50% mortgage penetration, the company added.

“Combining HDFC’s specialization in housing finance and leveraging HDFC Bank’s vast distribution and customer base will, in the long-term, aid in the deeper penetration of mortgage in India,” Mistry said.

Other synergies

On the significance of the merger, Mistry said: “The scale of the merger is huge be in terms of total assets, total deposits or market capitalization.”

The combined entity is now the world’s fourth largest bank by market cap in the world — behind JPMorgan Chase, Industrial and Commercial Bank of China and Bank of America. HDFC Bank is currently India’s second most valued company by market cap after Reliance Industries.

HDFC Bank will also have the advantage of access to low-cost current and time deposits, as well as “a much wider distribution platform and the ability to offer more customized products,” Mistry said.

HDFC Bank will now be able to offer more products to home loan customers, he said, explaining that someone taking a housing loan will be able to receive bundled offers from HDFC Bank — such as a savings account and a loan to procure large electrical goods like refrigerators and washing machines.

Additionally, Mistry noted that customers with a mortgage loan will maintain a much higher bank balance than other account holders, giving HDFC Bank an opportunity to increase its low-cost savings account deposits.

“The merger will be EPS accretive for HDFC Bank,” the non-executive director said, implying it will add to the company’s earnings growth.

“Over time, the synergies between HDFC Bank and other group companies will only deepen,” he said adding he was confident there were no “insurmountable challenges.”

— CNBC’s Naman Tandon contributed to this report.

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July 4, 2023
India’s HDFC Bank completes $40 billion takeover of the country’s largest mortgage lender. Here’s what it means

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A HDFC Bank branch in Mumbai, India, on Friday, April 14, 2023.

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India’s largest private lender HDFC Bank has completed its merger with Housing Development Finance Corporation, the country’s biggest mortgage lender, in a deal that pits the new entity against the world’s largest banks.

The merger took effect on July 1, following shareholder and regulatory approvals.

The merged entity will be the world’s fourth largest bank by market cap in the world — behind JPMorgan Chase, Industrial and Commercial Bank of China and Bank of America, said Soumya Rajan, CEO and founder of Mumbai-based Waterfield Advisors.

“This is a defining event in our journey and I’m confident that our combined strength will enable us to create a holistic ecosystem of financial services,” Sashi Jagdishan, CEO of HDFC Bank said Friday.

“As we navigate the path ahead, we will embrace challenges as opportunities, learn from our experiences, and strive to be the benchmark of success and integrity in the financial services industry,” he said in a press release.

Merger details

The merger took place on Saturday, about 15 months after the deal was first announced.

HDFC Bank announced in April last year that it will be acquiring its parent company Housing Development Finance Corporation, the largest home financing lender in India, in a $40 billion all-stock deal.

The merger was carried out efficiently due to the “common culture” that both companies have, said Nilesh Shah, managing director at Kotak Mahindra Asset Management.

HDFC shareholders will receive 42 shares of HDFC Bank for every 25 shares they own, and HDFC will cease operations on the Indian stock market on 13 July.

The new entity now holds a market cap of approximately $172 billion, Rajan said, adding it will become India’s second most valued company by market cap after Reliance Industries.

Synergies

“These two powerhouses coming together should make a material impact in growth and expanding the client base in the days to come,” Shah told CNBC.

“So for them, one plus one should become 11 and not two or three. They need to leverage these synergies to create even a better organization than what has already been created,” he said.

In a presentation to HDFC investors, the mortgage lender outlined synergies including access to lower funding costs, operational efficiencies and a wider distribution network for HDFC.

There will also be cross-selling opportunities as 70% of HDFC’s customers do not have a banking account with HDFC Bank, according to the presentation. In addition, out of HDFC Bank’s 71 million customer base, “only 5% have a mortgage from other mortgage providers and only 2% have a mortgage from HDFC.”

Before the two entities merged, HDFC was the “organization that gave most people mortgages and housing loans in India, which they could never aspire to have in the past,” said Rajan from Waterfield Advisors.

The merger was “inevitable,” and it now gives customers access to a suite of services and a bigger distribution network, she added.

More M&A to come?

Both analysts agreed that more such mergers could be seen coming out of India.

“In this instance, you had the case of a mortgage lender, and you had a case of a pure bank, and being able to find the synergies there. Likewise, if there are other standalone entities that specialize in specific services — which could be complementary to a larger bank – I think those will start playing out as well [in a merger],” she added.

Shah said that HDFC Bank is not part of the MSCI Emerging Market Index, but may now be included.

The merger gives the new entity a “fast growing opportunity” for global investors looking to buy into India’s banking sector, Shah highlighted.

“It was always a non-index bet, but despite that investors felt comfortable owning it. Being part of the index is now going to really positively bring many more new investors into HDFC Bank,” Shah said.

Shares of HDFC Bank are up 4.5% year-to-date, while shares of HDFC have risen 7% in the same period, according to FactSet data.

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July 2, 2023