HDFC to be merged with HDFC Bank

HDFC Bank on Monday said that its Board of Directors has approved a composite scheme of amalgamation of HDFC Investments and HDFC Holdings with HDFC and that of HDFC into itself, i.e., HDFC Bank.

Upon the Scheme becoming effective, the subsidiaries/associates of HDFC Limited will become subsidiaries/associates of HDFC Bank.

The share exchange ratio for the amalgamation of HDFC Limited with and into HDFC Bank shall be 42 equity shares (credited as fully paid up) of the face value of Rs 1 each of HDFC Bank for every 25 fully paid-up equity shares of the face value of Rs 2 each of HDFC Limited. As a result of this, upon the Scheme becoming effective, HDFC Bank will be 100% owned by public shareholders and existing shareholders of HDFC Limited will own 41% of HDFC Bank.

HDFC Bank in a regulatory filing at the bourses said, "The Board of Directors of HDFC Bank and HDFC Limited, at their respective meetings held today, approved a composite scheme of amalgamation ("Scheme") of: (i) HDFC Investments Limited and HDFC Holdings Limited, into and with HDFC Limited; and (ii) HDFC Limited into HDFC Bank, and their respective shareholders and creditors, under Sections 230 to 232 of the Companies Act, 2013 and other applicable laws including the rules and regulations ("Proposed Transaction")."

The Scheme is subject to the receipt of requisite approvals from the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI'), the Competition Commission of India, the National Housing Bank (NHB), the Insurance and Regulatory and Development Authority, the Pension Fund Regulatory and Development Authority, the National Company Law Tribunal, BSE Limited and the National Stock Exchange of India Limited and other statutory and regulatory authorities, and the respective shareholders and creditors.

The Board of Directors of HDFC Bank has also accorded approval for the execution of an implementation agreement between HDFC Limited and HDFC Bank ("Implementation Agreement"), which inter alia sets out the manner of implementing the Proposed Transaction contemplated under the Scheme, the representations and warranties being given by each party and the rights and obligations of the respective parties in relation to the Proposed Transaction.

As per the Scheme, the appointed date for the amalgamation of HDFC limited with and into HDFC Bank shall be the effective date of the Scheme. Further, the appointed date for amalgamation of HDFC Investments Limited and HDFC Holdings Limited with and into HDFC Limited shall be the end of the day immediately preceding the effective date of the Scheme.

The rationale for amalgamation/merger

The Proposed Transaction, shall enable HDFC Bank to build its housing loan portfolio and enhance its existing customer base.

The Proposed Transaction is based on leveraging the significant complementarities that exist amongst the Parties. The Proposed Transaction would create meaningful value for various stakeholders including respective shareholders, customers, and employees, as the combined business would benefit from increased scale, comprehensive product offering, balance sheet resiliency and the ability to drive synergies across revenue opportunities, operating efficiencies and underwriting efficiencies, amongst others.

HDFC Bank is a private sector bank and has a large base of over 6.8 Crore customers. The bank platform will provide a well-diversified low-cost funding base for growing the long tenor loan book acquired by HDFC Bank according to the Proposed Transaction.

HDFC Bank is a banking company with a large distribution network that offers product offerings in the retail and wholesale segments. HDFC Limited is a premier housing finance company in India and provides housing loans to individuals as well as loans to corporate, undertakes lease rental discounting and construction finance apart from being a financial conglomerate. A combination of HDFC Limited and HDFC Bank is entirely complementary to and enhances the value proposition of, HDFC Bank.

HDFC Bank would benefit from a larger balance sheet and net worth which would allow underwriting of larger ticket loans and also enable a greater flow of credit into the Indian economy.

HDFC Limited has invested capital and developed skills and has set up 445 offices across the country. These offices can be used to sell the entire product suite of both HDFC Limited and HDFC Bank.

the loan book of HDFC Limited is diversified having cumulatively financed over 90 lakh dwelling units. With HDFC Limited's leadership in the home loan arena, developed over the past 45 years, HDFC Bank would be able to provide customers with flexible mortgage offerings cost-effectively and efficiently.

HDFC Bank has access to funds at lower costs due to its high level of current and savings accounts deposits (CASA). With the amalgamation of HDFC Limited with HDFC Bank, HDFC Bank will be able to offer more competitive housing products.

HDFC Limited's rural housing network and affordable housing lending are likely to qualify for HDFC Bank as priority sector lending and will also enable a higher flow of credit into priority sector lending, including agriculture.

The Proposed Transaction will result in reducing HDFC Bank's proportion of exposure to unsecured loans.

HDFC Limited has built technological capabilities to evaluate the creditworthiness of customers using analytical models and has developed unique skills in financing various customer segments. The models have been tested and refined over the years at scale and HDFC Bank will benefit from such expertise in underwriting and financing mortgage offerings.

HDFC Bank can leverage the loan management system, comprising rule engines, IT tools and rules, and agents connected through a central system.

The Proposed Transaction is expected to result in bolstering the capital base and bringing resiliency to the balance sheet of HDFC Bank;

HDFC Investments Limited and HDFC Holdings Limited are Systemically Important Non-Deposit Accepting Non-Banking Finance Companies and are also wholly-owned subsidiaries of HDFC Limited. The Proposed Transaction shall result in a simplified corporate structure.

Atanu Chakraborty, Chairman, HDFC Bank, said, "The product and market leadership of HDFC Limited in the housing finance business and the distribution and customer leadership of HDFC Bank enables the combined entity to offer a full suite of financial products to Indians at large and the proposed transaction is a big step in realizing the vision of housing for all as envisioned by our government."

Deepak Parekh, Chairman, HDFC Limited, said, "This is a merger of equals. We believe that the housing finance business is poised to grow in leaps and bounds due to the implementation of RERA, the infrastructure status of the housing sector, and government initiatives like affordable housing for all, amongst others. Over the last few years, various regulations for banks and NBFCs have been harmonised, 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 is a banking company licensed by the RBI under the provisions of the Banking Regulation Act, 1949. Its shares and American Depository Receipts are listed on SSE Limited, National Stock Exchange of India Limited and New York Stock Exchange respectively. HDFC Bank has total assets Rs 19,38,285.95 crore, turnover of Rs 1,16,177.23 crore (includes other income) and net worth of Rs 2,23,394.00 crore, as on December 31, 2021.

HDFC Limited is a deposit-taking housing finance company registered with NHS and its shares are listed on BSE Limited and National Stock Exchange of India Limited. The Corporation has total assets of Rs 6,23,420.03 crore, a turnover of Rs 35,681.74 crore and a net worth of Rs 1,15,400.48 crore as of December 31, 2021.

HDFC Holdings Limited and HDFC Investments Limited are non-deposit accepting non-banking finance companies, registered with RBI, and engaged in the business of investments in stocks, shares, debentures and other securities. Both are unlisted companies.

HDFC Investments Limited has total assets of Rs 341.37 crore, a turnover of Rs 200.11 crore and a net worth of Rs 292.41 crore as of December 31, 2021.

HDFC Holdings Limited has total assets of Rs 244.43 crore turnover of Rs 20.88 crore and a net worth of Rs 241.80 crore as of December 31, 2021.