It's a cost advantage for HDFC, says former SBI chief Rajnish Kumar

The advantage of the merger was that the cost of borrowing for HDFC Ltd will come down, former SBI chairman Rajnish Kumar has said in a CNBC TV18 interview.

"When the cost comes down the combined entity gains in terms of cost efficiencies and it is value accretive for both the shareholders of HDFC and HDFC Bank,” he said.

Both the firms announced in a notice to exchanges that the merger would be through a share swap and once the deal is effective, HDFC Bank will be 100% owned by public shareholders and existing shareholders of HDFC will own 41% of the bank, according to the filing.

Every HDFC shareholder will get 42 shares of HDFC Bank for 25 shares held. The merger will be expected to be completed by the second or third quarter of fiscal year 2024.

The merger follows a proposal by the Reserve Bank of India for large non banking finance companies to convert into banks after India was shaken by a massive shadow lending crisis in 2018.

With the parent finally merging the bank, the resultant entity will emerge as a powerhouse in the Indian banking industry.