The HDFC Merger and Sharemarket
The largest private bank of India will be created after the merger of HDFC ltd with its own offshoot HDFC bank.
Ø Post the merger, HDFC will be fully owned by public shareholders, while existing shareholders of HDFC will own 41% of HDFC bank.
Ø The two step merger would take approximately 12-14 months subject to completion of regulatory approvals and customer closing conditions.
Ø The large customer base of 6.8 crores will benefit from this merger as stated by the vice chairman of HDFC, Keki Mistry.
Ø For every 25 shares of HDFC owned, shareholders would receive 42 shares of HDFC bank.
Ø The capabilities of the 2 firms will be combined for better scaling and increasing the customer base. As well as it would enable HDFC bank to build its housing loan portfolio as HDFC limited is one of the pioneers in this sector.
Ø Balance sheets worth 17.87 trillion and 3.3 trillion would combine, this huge net worth would guarantee large ticket loans and greater credit flow in the economy.
Ø Cross selling of products would increase to a great extent after building a large customer base.
Ø After the merger announcement HDFC skyrocketed to 14% increase.
Ø Unfortunately, this bullish stock succumbed to a hefty bout of profit-booking after its surge on Monday. The week ended with a 9% decline.
Ø Analysts believe that concerns among investors regarding CRR (cash reserve ratio) SLR (statutory liquidity ratio) and PSL (Priority sector lending) also contributed to the downfall of share price.
Ø Sensex and nifty both closed at 2.25% and 2.17% high on 4th April. The top gainers being the HDFC twins
Ø The effects of the merger would be a long term effect on the banking and non banking sector in India. It would redefine the competitive landscape for banks & would increase prominence of mergers and acquisitions (M&A) among banks
Ø As banking sectors play an intermediation role by facilitating money movements between both fund-suppliers and fund- demanders. The effects of this merger is not just limited to the banking sector. The real estate sector, manufacturing sector as well as IT sector are said to be influenced by the banking sector the most.
Written By:
Esha Parekh