India’s largest housing finance company HDFC Ltd. will merge with India’s largest private sector bank by assets HDFC Bank. The subsidiary and associates of HDFC Ltd. will now come under HDFC Bank. Shareholders of HDFC Ltd. will receive 42 shares of HDFC Bank for every 25 shares of HDFC Ltd. HDFC Ltd.’s shareholding in HDFC Bank will be canceled and after completion of the deal, current shareholders of HDFC Ltd will hold 41% of HDFC Bank. The merger is subject to the approval of creditors, shareholders and regulators. and is expected to complete within 18 months.

The combined entity will have a balance sheet of INR 17.87tn ($236.7bn) and a net worth of INR 3.3tn ($43.7bn) and thereby allow underwriting of larger ticket loans. HDFC Ltd. currently has total AUM of INR 5.26tn ($69.7bn)The deal is also expected to help HDFC Bank, which has 68mn customers, 6,342 branches, to shrink the gap with state-run State Bank of India, also boosting competition in the home loan space as the housing market has seen a revival in recent times. Analysts expect HDFC Bank’s loan book to increase by 40% post-merger. Deepak Parekh, Chairman of HDFC Ltd., said, “This is a merger of equals. Over the last few years, various regulations for banks and NBFCs have been harmonized, thereby enabling the potential merger. Further, the resulting larger balance sheet would allow underwriting of large ticket infrastructure loans, accelerate the pace of credit growth in the economy, boost affordable housing and increase the quantum of credit to the priority sector, including credit to the agriculture sector.”

HDFC Bank’s dollar bonds were lower – its 3.7% Perp were down 0.36 points to 92.75 and yielding 5.59%.

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