As of November 2020, strategists suspect the coalition may be the result of suggestions from the Reserve Bank of India. Large, well-regulated debt bankers with assets of over Rs 500 billion can be rated to be turned into banks. The companies said on Monday that India’s largest private lender HDFC Bank would merge with the country’s largest housing finance company HDFC Ltd to create a combination of financial services and boost their shares sharply higher.
Under the agreement, the HDFC Ltd investor will acquire an allocation of 42 from the bank for every 25 shares held. After this coalition, the existing shareholders of HDFC Ltd will own 41% of HDFC Bank. The shares held by the housing fund company will be extinguished, making HDFC Bank a fully public company. After the announcement of the HDFC Bank stock announcement, shares jumped 10%, while HDFC Ltd jumped 13%.
Strategists believe the merger could be the conclusion of a recommendation from the Reserve Bank of India. Full-fledged shadow bankers with an asset size of over Rs 500 billion can be considered for transformation into banks.
HDFC Ltd Chairman Deepak Parekh said “the huge secured balance sheet would help capitalize large infrastructure loans, accelerate the pace of credit expansion in the economy, improve affordable housing and to increase the amount of credit to the priority sector”.
On Friday, HDFC Bank had a market valuation of 8.34 trillion rupees while HDFC Ltd was worth 4.44 trillion rupees. Research Analyst at Ashika and Asutosh Mishra at Brokerage said that “This is the most anticipated coalition and it will be beneficial for both companies but especially for HDFC Ltd which was competing with State Bank of India on a aggressive home loan market, leading to strain on margins due to its cost of funds drawbacks,” Asutosh Mishra added.
The regulatory filing stated that “Subsidiaries and associates of HDFC Ltd will transition to HDFC Bank.
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