HDFC merger likely to benefit investors and the banking system, believe analysts

HDFC an HDFC Bank merger

Analysts believe the merger of HDFC Bank with HDFC Investments Ltd and HDFC Holdings Ltd, two subsidiaries of Housing Development Corporation (HDFC), which too is merging with the bank, will have a considerable positive impact on the lender’s customers and the investors and also influence overall banking as well as the lending business of HDFC.

Most analysts are of the opinion that this merger will provide a cross-selling opportunity to the customers of both entities. “The share of longer-tenor secured assets will increase for HDFC Bank as mortgage loans are secured and generally longer-tenor in nature,” said Karan Gupta, director of India Ratings and Research.

In an earlier interview, banking consultant Ashvin Parekh said that if mergers of the banks are done with proper goals planned within a dedicated time frame, it will benefit the system.

Talking about the merger of HDFC twins, he added, “HDFC has been contemplating it for the past few years and they were examining if there could be some relief on the SLR (statutory liquidity ratio) sort of requirement and also on the priority sector kind of lending requirement. They have done it at an opportune time because the NBFC (non-banking financial company) business was coming under more regulatory scrutiny. In that backdrop, HDFC needed to analyse whether it would have been beneficial to continue as an NBFC or become a bank. Both the boards have evaluated it for a long time and worked out on goals and targets.”

Analysts pointed out that the HDFC entities have a huge market capitalisation and HDFC as a group has always rewarded investors well, a trend they see continuing.

“The merger goes well at a time when the economic cycle is going well for India,” said Parekh.

According to several analysts, this merger will be equally beneficial for both customers and the bank. “It could become a more formidable player in the housing finance market with this merger.  Moreover, with better cost of funding, it will also help them grow their portfolio. Housing includes long-term assets so it will provide slightly longer stable assets for their portfolio and eventually get better cost of funding for the overall growth. So here is a benefit from the perspective of the bank,” said Prakash Agarwal, director and head, financial institutions, India Ratings and Research.

From the customer’s perspective, there could be some positive aspects that include better implementation of high-end technology to ensure better customer experiences. 

“With this merger HDFC Bank gets an unparalleled advantage through the mortgage portfolio providing it a quantum leap in distribution to semi-urban and rural areas with a huge opportunity to cross-sell bank products to a very, very sticky client base.

The combined entity will be able to extract substantial synergy benefits which bodes well for all stakeholders and shareholders,” said Samir Bahl, CEO, investment banking at Anand Rathi Advisors.