HDFC will be world's 4th most valuable bank after merger
What's the story
The merger between HDFC and HDFC Bank is set to become effective from July 1. The resulting entity will be one of the largest banks in the world in terms of equity market capitalization. It will mark the first time a homegrown Indian bank will rank among the world's most valuable banks. The new HDFC Bank entity will challenge American and Chinese lenders.
Context
Why does this story matter?
The HDFC-HDFC Bank merger creates a financial titan with a diverse profile. The bank is already the largest lender in the country by market capitalization. However, the merger makes it an internationally competitive lender. No bank from India has managed to do that till now. The merger not only increases the bank's competitiveness but also makes its balance sheet more resilient.
Valuable
The proposed entity will have a market capitalization of $172bn
Per Bloomberg, the proposed entity will have a market capitalization of $171.8 billion. It will only trail JPMorgan Chase, Industrial and Commercial Bank of China, and Bank of America. It will leapfrog some of the biggest names in banking, including HSBC, Wells Fargo, and Morgan Stanley. The new entity will also jump ahead of its Indian peers, including SBI and ICICI Bank.
Growth
HDFC has great growth potential
The new entity will have around 120 million customers and 177,000 employees. Despite its scale and size, analysts think the new entity can grow even further in the coming years. The bank expects to grow by 18-20% in the next few years. It also plans to double the number of branches in the next four years.
Deposits
The resulting entity can tap into more customers
The merger will help the lender tap into the customer base of the separate entities. For instance, HDFC Bank gets a chance to grow its deposit base by approaching the customers of the mortgage lender. Approximately 70% of HDFC's customers do not have an account with HDFC Bank. Similarly, the lender will be able to offer in-house loan products to its clientele.
Shareholders
The merger is a massive win for shareholders
The deal is a massive win for shareholders, at least on paper. The bank's risky contingent convertible bonds have outperformed global lenders, showcasing its ability to meet capital requirements and absorb losses. The lender will be owned by public shareholders. HDFC's shareholders will own 41% of the resulting entity. Every HDFC shareholder will receive 42 shares of the bank for 25 shares of HDFC.