The merger between HDFC Bank and Housing Development Finance Corporation (HDFC) in India, a $40 billion deal that came into effect on July 1, is expected to bring about significant benefits, according to Keki Mistry, the non-executive director of HDFC Bank.
The merger between India’s largest mortgage lender, HDFC, and the country’s biggest private lender, HDFC Bank, is set to increase the combined entity’s customer base and create more opportunities for cross-selling financial products. Keki Mistry emphasised that the move would enhance the bank’s mortgage portfolio and attract more customers looking for a diverse range of financial services.
This strategic union is anticipated to provide customers with customised products tailored to their specific needs, a unique advantage that only Indian banks can offer. For HDFC Bank, it opens up vast opportunities for cross-selling financial products to its expanded customer base.
A key driver behind the merger is maximising growth potential and deepening credit markets, particularly in the mortgage sector in India. While HDFC Bank has approximately 83 million customers, only a small fraction (2%) currently have a housing loan with HDFC. About 5% have housing loans from other lenders, leaving a significant portion (93%) of HDFC Bank’s customers without a home loan. This situation creates ample scope for cross-selling mortgage services and tapping into untapped customer segments.
Mistry pointed out that mortgage penetration in India remains “extremely low” at around 11% of its GDP, in stark contrast to countries like China (26%) and Southeast Asian nations (20% to 40%). The merger is expected to leverage HDFC’s expertise in housing finance and HDFC Bank’s vast distribution and customer base to boost mortgage penetration in India over the long term.
Aside from the potential mortgage-related synergies, the merger has significantly increased the combined entity’s scale, making it the fourth-largest bank in the world by market capitalisation. With access to low-cost current and time deposits and an expanded distribution platform, HDFC Bank will be better positioned to offer more customised products to its customers.
Mistry highlighted that the merger would be EPS accretive for HDFC Bank, implying that it will contribute to the company’s earnings growth. He expressed confidence that the synergies between HDFC Bank and other group companies would continue to strengthen over time, leading to a fruitful and seamless integration without any “insurmountable challenges.”
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