HDFC Bank A New Banking Giant
HDFC bank’s board announced the merger of its banking unit with HDFC Ltd. HDFC bank will be 100% owned by public shareholders and existing shareholders of HDFC will own 41% of HDFC bank. The share exchange ratio decided by the board for shareholders of HDFC ltd. is that they will receive 42 shares of HDFC bank for every 25 shares of HDFC ltd they hold.
The merger will enable the banking unit to build its housing loan portfolio and grow its current customer base. The bank has a customer base of around 6.8 crores. It would also benefit from a large balance sheet and strong cashbase which would allow them to underwrite larger ticket loans and also enable greater flow of credit into the economy. With HDFC Limited's competitive advantage in the home loan segment, nurtured over 45 years, HDFC Bank would provide customers flexibility in mortgage offerings in an efficient manner. It shows clear cut operational synergy between both the ventures.
Post merger scenario
HDFC's rural housing segment and affordable or small ticket size housing lending are most likely to qualify for HDFC Bank as a priority sector lending and will also result in the higher flow of credit into priority sector lending, which includes the agriculture segment.
The banking unit has access to funds at very lower costs due to its high level of CASA (Current And Savings Accounts deposits). With the amalgamation, HDFC Bank will be able to offer more competitive products in the housing market.
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