DH Deciphers | How will HDFC twins merger impact customers, shareholders and employees
The reverse merger of Housing Development Finance Corporation (HDFC) with its subsidiary HDFC Bank is termed as the biggest transaction in the history of India Inc. In terms of market capitalisation, the merged entity will become the fourth largest lender globally with a value of about $172 billion. It will become the second most valuable company in India. In this issue of DH Deciphers, Gyanendra Keshri delves on the changes that customers, employees and shareholders will witness post-merger.
What is the status of the HDFC Bank-HDFC Ltd merger?
The merger of HDFC Bank and HDFC Ltd is effective from July 1. The Boards of both the companies at their respective meetings held on June 30 decided on the effective date. This means Housing Development Finance Corporation Limited, India’s largest pure-play home loan provider, now ceases to exist as a company. It will be delisted from the stock exchanges. July 13, 2023, has been decided to be the record date. This means on July 13 the shareholders of HDFC Ltd shall be issued and allotted the shares of HDFC Bank. July 12 has been fixed as the date for transfer of non-convertible debentures of HDFC Ltd in the name of HDFC Bank. It may be noted that the two companies had made the announcement about their merger on 4th April 2022. The process is set to be completed in about 15 months.
As HDFC Ltd ceases to exist, what will happen to its shareholders?
Every HDFC Ltd shareholder will get 42 shares of HDFC Bank for every 25 shares they hold. Suppose, if you own 100 shares of HDFC Ltd you will get 168 shares of the merged entity. You will be allotted these shares on July 13. Trading window in HDFC Ltd will remain closed from July 1 to July 13. If you are a HDFC Ltd shareholder, you will become HDFC Bank shareholder on July 13 and be able to trade in your shares from July 14.
How will the merger impact HDFC customers?
The loan accounts of HDFC customers will be transferred to HDFC Bank post the effective date of merger. However, HDFC portal and mobile application would continue to work as usual. So, if you are a HDFC customer, your loan account number, terms of loan agreement and login credentials will remain unchanged. The merger will also not have any impact on interest rates and repayment cycle of the loan. This means the EMI will remain the same.
How will HDFC Bank's business be affected by the merger?
The merger will transform HDFC Bank into a financial services conglomerate that offers a full suite of financial services, from banking to insurance, and mutual funds through its subsidiaries. So far, HDFC Bank was a distributor for these products.
What will happen to HDFC Ltd employees? How will it impact the employees of HDFC Bank?
As per the terms of the merger, all employees of HDFC Ltd as on the effective date (1st July 2023) will become HDFC Bank employees. HDFC has a low employee base. The merger will lead to just a 2.32 per cent increase in the total number of employees of HDFC Bank. Prior to the merger the total number of employees of HDFC Bank stood at 173,222. After the addition of HDFC Ltd employees the number will increase to 177,239. The merger is bound to lead to organisational restructuring and realignment of roles and responsibilities. Such changes affect middle and senior level employees the most.
How will the merger impact the stock markets?
The merger will lead to around 54 per cent jump in the market capitalisation of HDFC Bank. As on June 30, the market capitalisation of HDFC Ltd stood at Rs 5.22 lakh crore and that of HDFC Bank at Rs 9.51 lakh crore. The combined entity will have a market capitalisation of around Rs 14.74 lakh crore. This will make HDFC Bank the second most valuable Indian company after Reliance Industries Limited (RIL), which has the market capitalisation of Rs 17.25 lakh crore. HDFC Bank’s weighting on the benchmark indices will jump to 14 per cent, which will be much higher than RIL’s 10.4 per cent weightage. This means a change in the share price of HDFC Bank will have the highest impact on the benchmark indices like Sensex and Nifty.
What does the merger mean for the Indian economy and the banking sector in particular?
The merged entity will be a behemoth in the banking industry. Post merger, HDFC Bank will become the fourth largest lender globally in terms of equity market capitalisation. It will be behind only JPMorgan Chase, Industrial and Commercial Bank of China, and Bank of America. In India, the market capitalisation of all other private sector lenders put together will be less than that of HDFC Bank. The market capitalisation of all public sector lenders put together will also be less than HDFC Bank. In terms of assets, it will be only second to State Bank of India. The larger net-worth would allow greater flow of credit into the economy. It will also enable underwriting of larger ticket loans, including infrastructure loans.
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