HDFC Bank and HDFC Merger
The merger between the Housing Development Finance Corporation (HDFC) and its subsidiary HDFC Bank, effective from July 13, marks a significant milestone in India’s corporate history. With the approval of their respective boards, the merger will result in HDFC ceasing to exist and HDFC Bank becoming 100 percent owned by public shareholders. Existing shareholders of HDFC will own 41 percent of the bank, solidifying the new structure.
The merger process will see HDFC Bank issuing and allotting 42 new equity shares with a face value of Re. 1 each, fully paid up, to eligible shareholders. For every 25 equity shares of HDFC Ltd, with a face value of Rs 2 each, held by such shareholders as of the record date (July 13, 2023), they will receive the new equity shares. This consolidation will eliminate the identification of a specific promoter for HDFC Bank.
Employees of HDFC Ltd as of the effective date will become part of the HDFC Bank family. The bank has been diligently preparing for seamless integration of systems, processes, and workplace culture to ensure a smooth transition and foster a welcoming environment for the employees from HDFC Ltd. Sashi Jagdishan, CEO and MD of HDFC Bank, expressed his enthusiasm for this significant event, stating that the combined strength of both entities will enable the creation of a comprehensive financial services ecosystem.
Following the merger, HDFC Bank’s key subsidiaries will include HDFC Securities Ltd, HDB Financial Services Ltd, HDFC Asset Management Co Ltd, HDFC ERGO General Insurance Co Ltd, HDFC Capital Advisors Ltd, and HDFC Life Insurance Co Ltd. The consolidated entity will have a substantial asset base of approximately Rs 18 lakh crore, making it a major player in the financial industry.
The impact of this merger extends to the stock market indices, as the combined shares of HDFC and HDFC Bank will hold a weightage of close to 14 percent. This surpasses the current heavyweight, Reliance Industries, which stands at 10.4 percent. With HDFC Bank becoming fully owned by public shareholders, the existing shareholders of HDFC will possess a 41 percent stake in the bank.
Mutual fund managers of diversified equity schemes will adjust their portfolios accordingly to comply with regulatory norms. As per the guidelines set by the Securities and Exchange Board of India (SEBI), equity investments in a single company should not exceed 10 percent of the net assets of the scheme for diversified equity funds. However, sector-specific or thematic funds are exempted from this regulation.
Upon completion of the merger, HDFC shareholders will receive HDFC Bank shares in their demat accounts. The newly issued HDFC Bank shares are expected to be listed on the stock exchanges by July 17, 2023. Additionally, the recent relaxation of rules by SEBI pertaining to warrant listing has further facilitated the merger process, providing flexibility to HDFC and HDFC Bank.
This transformative merger between HDFC and HDFC Bank not only redefines the corporate landscape but also sets the stage for enhanced financial services in India. With a shared vision of agility, adaptability, and excellence, the amalgamation aims to establish a benchmark for success and integrity within the industry. As the journey unfolds, the new entity is poised to navigate challenges, leverage opportunities, and create a robust and inclusive financial ecosystem for the benefit of its stakeholders and customers.