HDFC-HDFC Bank merger: What does it mean for depositors and borrowers?

HDFC Chairman Deepak Paresh addressed a press conference on the merger.

India’s largest housing finance company HDFC is all set to merge with HDFC Bank in an all-stock deal to create a combined entity with a market value of around Rs 12.8 lakh crore.

Top management of HDFC and HDFC Bank as well as industry experts feel the mega-merger is a win-win for the two organisations, stakeholders, customers and even the economy. However, HDFC’s depositors and borrowers are bound to have certain doubts regarding the future of their long-term contracts.

Also read: HDFC, HDFC Bank all set to merge

Customers’ interests

What is clear is that the status quo will be maintained until the amalgamation takes effect, which could take anywhere between 12 to 18 months as the proposal will need to be approved by a host of regulators. These include the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI), Pension Funds Regulatory and Development Authority (PFRDA) and Competition Commission of India (CCI).

The management has indicated that the merger could take effect by Q3 or Q4 of FY24. “HDFC and HDFC Bank depositors will continue to get the rates that they have been getting. After the merger, there will be a harmonisation at the bank’s card rates,” Sashidhar Jagdishan, MD and CEO, HDFC Bank, told Moneycontrol. That is, depositors will be offered the bank’s rates after the merger comes into effect.

Also read: HDFC twins to pop into global club of 100 most valued firms led by Apple

Until then, it will be status quo for borrowers and depositors. Currently, a deposit of less than Rs 2 crore with a tenure of two years and nine months will fetch you interest rates of 6.15-6.35 percent per annum. HDFC Bank offers interest rates of 5.2-5.7 percent per annum for comparable tenures.

HDFC’s distributors say that the top officials have been in touch with them and the transition is likely to be smooth.

“This is not the first time such a merger is set to take place. We have handled such situations before—for example, during Gruh Finance’s (erstwhile HDFC subsidiary) merger with Bandhan Bank, though this merger is on a much larger scale.

"We have been assured by HDFC and I am confident that the management will ensure that the transition is hassle-free. The branches could perhaps be allotted to HDFC depositors on the basis of their current addresses. The companies will work out the logistics,” says Hanoz Patel, Founder Partner, Power Pusher Financial Services LLP.

Depositors will have adequate time to make up their minds on letting their fixed deposits mature or renewing them at that juncture.

A switch to external benchmarking regime?

The home loan portfolio of HDFC, a housing finance company, will move to HDFC Bank, a banking entity.

While both are regulated by the RBI even now, banking rules differ on how retail home loans are benchmarked. Banks’ new floating-rate retail loans (sanctioned after October 1, 2019) are linked to an external benchmark , which in the case of most banks is the repo rate.

Non-banking finance companies (NBFCs), on the other hand, do not have to link their retail loans to an external benchmark at present, though competition compels them to offer comparable rates.

“The combined entity will be a banking company, so banks’ regulatory framework will be applicable. So new customers of the merged entity will be offered external benchmark-linked rates. It is possible that HDFC’s existing customers will be given a choice to switch to this regime post the merger. These details will be clearer closer to the merger,” says former banker and financial counsellor VN Kulkarni.