Bloomberg: India’s HDFC Bank is now the world’s fourth-largest bank

India’s banking landscape has undergone a tectonic shift with the iconic Housing Development Finance Corporation (HDFC) Ltd, having executed a reverse merger with HDFC Bank, as of 1^st July 2023.

The deal was agreed upon in April 2022 with HDFC Bank poised to take control of its parent company, in a

…$40-billion all-stock deal.

Regarding the equities market, trading of the newly merged entity has been closed for employees, directors and their relatives until the 13^th of July, 2023, during which new share allocations shall be made.

Key points

These are some of the key features of the newly merged HDFC Bank.

The world’s fourth-largest bank by market cap

Bloomberg noted that in USD, the entity would be valued at $172 billion, pushing it to the position of the world’s fourth largest bank, behind only JPMorgan Chase & Co., Industrial and Commercial Bank of China Ltd., and Bank of America.

As per the Mint, a leading English-language newspaper, the combined market cap of HDFC Bank would make it the second most valuable company in India.

Largest weightage in the Indian stock exchange

With HDFC Bank accounting for 9.2% of the NSE Nifty and HDFC’s weightage of approximately 6.2%, the newly merged entity will contribute nearly 15.4% of the index, displacing Mukesh Ambani’s Reliance Industries as the top stock at 10.4%.

In addition, the merger would see marquee companies such as HDFC Securities, HDFC AMC and HDFC Life Insurance coming under the umbrella of HDFC Bank.

This would pave the way for HDFC Bank to become a global financial services conglomerate offering a range of services to its customers.

Structure of shareholding

The Mint notes that,

…HDFC Bank will be completely owned by public shareholders, and existing shareholders of HDFC Ltd will own 41 per cent of the HDFC Bank.

HDFC shareholders shall receive 42 shares of HDFC Bank for every 25 shares they own, amounting to a merger ratio of 1.68.

Expanding reach

The merged bank boasts a combined workforce of 177,000 employees, 8300 overseas branches and a customer base of over 120 million.

HDFC Bank aims to grow at 18%-20% given robust earnings growth and plans to expand its branches by 100% over the coming years.  

In addition, with 70% of the customers enjoying products such as mortgages but not having their bank account with the lender, there are plans to assist in setting up fresh savings accounts for them.

Suresh Ganapathy, head of financial services research for India at Macquarie was quoted in the Bloomberg piece,

Worldwide there are very few banks, which can at this scale and size, still aspire to double over a period of four years…(will remain a) formidable institution.

D-SIBs

The Reserve Bank of India designated HDFC Bank as one of the Domestic Systemically Important Banks (D-SIBs) in March 2017.

As of 30th June, on the global stage, HDFC Bank’s perpetual dollar notes have significantly outperformed Bloomberg’s index of global banks’ coco bonds, with the former returning 3.1% this year against a loss of 3.5% for the latter.