Under the deal, HDFC Ltd shareholders will receive 42 shares of the bank for every 25 shares held. The current shareholders of HDFC Ltd will own 41% of HDFC Bank.
The shares held by the housing finance company in the lender will be extinguished, making HDFC Bank a public company in its own right.
Shares of HDFC Bank jumped 10%, while HDFC Ltd jumped 13% after the announcement.
Analysts believe the merger could be the result of a recommendation from the Reserve Bank of India in November 2020 that large, well-managed shadow lenders with an asset size of over Rs 500 billion could be considered for conversion. in banks.
“The resulting larger balance sheet would allow for the underwriting of large infrastructure loans, accelerate the pace of credit growth in the economy, stimulate affordable housing, and increase the amount of credit to the priority sector…” the president said. of HDFC Ltd, Deepak Parekh.
As of Friday’s close, HDFC Bank had a market value of $8.34110.06 billion, while HDFC Ltd was worth $58.59 billion.
“This is a long overdue merger and will be beneficial for both companies but especially for HDFC Ltd which was competing with companies like State Bank of India in a competitive home loan market resulting in pressure on margins due to its cost of funds drawbacks,” said Asutosh Mishra, Research Analyst at Ashika Stock Broking.
“From now on, the combined entity will have the same cost structure as other banks, which will allow them to better compete with their peers.”
Subsidiaries and associates of HDFC Ltd will transition to HDFC Bank, the companies said in a regulatory filing.