Amalgamation scheme: Nod from bourses for HDFC twins’ merger

HDFC Bank and HDFC have received approval from the stock exchanges for the proposed merger of the latter into the former. HDFC Bank and parent company HDFC have received observations from the stock exchanges on Saturday with ‘no adverse observations’.

“HDFC Bank has received an observation letter with ‘no adverse observations’ from BSE Limited and observation letter with ‘no objection’ from the National Stock Exchange of India Limited, both dated July 2, 2022,” the lender said in an exchange filing.

“…the validity of this observation letter shall be six months from the date of this Letter, within which the scheme shall be submitted to the NCLT,” it further said.

The merger of HDFC with HDFC Bank is likely to come into effect in 15 to 18 months with the regulatory approvals. The proposed merger is yet to receive approval the Reserve Bank of India (RBI), Competition Commission of India (CCI), Securities and Exchange Board of India (SEBI), the National Housing Bank (NHB), the Insurance Regulatory and Development Authority of India (IRDAI), the Pension Fund Regulatory and Development Authority (PFRDA) and the National Company Law Tribunal (NCLT) and the shareholders and creditors of both the entities.

HDFC Bank and HDFC informed the approval of the merger scheme from the stock exchanges in two separate filings. On April 4, HDFC Group approved the merger of HDFC into HDFC Bank. Before the merger of HDFC into HDFC Bank, two other group entities HDFC Investments and HDFC Holdings will be merged into HDFC.

As per the scheme, shareholders of HDFC will receive 42 shares of HDFC Bank for 25 shares held in HDFC while the shares held by HDFC in HDFC Bank will be extinguished. Post the scheme, HDFC Bank will be 100% owned by public shareholders and existing shareholders of HDFC will own 41% of HDFC Bank.Under the scheme, HDFC Bank will enable delivery of home loans and leverage on the existing customers.

The proposed transaction is to create a large balance sheet and net-worth that would allow greater flow of credit into the economy and enable underwriting of larger ticket loans, including infrastructure loans. HDFC Bank has a presence in more than 6,342 branches, with about 50% of these branches in semi-urban geographies. After the merger, HDFC Bank’s customers will be offered mortgages as a core product while HDFC Bank will leverage the long tenor mortgage relationship to offer credit and deposit products.

Higher regulatory standards for the non-banking financial companies (NBFCs), reduction in statutory liquidity ratio (SLR) rates, deepening of affordable housing bond market and creation and deepening of priority sector lending (PSL) certificates market, have created a conducive environment for the merger, the lender said at the time of the announcement.Out of 7.1 crore HDFC Bank customers, only 2% had HDFC home loans while 5% of the bank customers have availed of mortgages externally.

The housing sector got an impetus with the launch of RERA and GST, ICICI Securities said in a report. Of the total HDFC customers, 70% of HDFC’s customers are not banking with HDFC Bank, which presents yet another addressable opportunity, the report said.

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