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HDFC Merger: HDFC Bank asks HDFC to cut exposure to loans that could become an irritant in their merger

As the merger of with mortgage lender shapes up, the duo are working out the modalities for a smooth amalgamation and making sure that the behemoth is birthed without any irritant.

According to a moneycontrol report, HDFC Bank, India’s largest private sector lender, has requested its parent

(HDFC) to reduce exposure to a certain category of loans that the Reserve Bank of India (RBI) doesn’t allow for banks.

These are mostly short-term loans that include certain corporate loans and loans to developers. It is estimated that the current value of these loans of HDFC’s books is around Rs 20,000-25,000 crore, part of which will get extinguished over the next few quarters, the report added.

However, the report stated that the mortgage lender will have around Rs 10,000 crore of such loans on its books prior to the merger.

The merger between HDFC and HDFC Bank was announced on April 4. The merger will give HDFC a 41 percent ownership in HDFC Bank, as per the plan.

The merger is likely to fructify somewhere in the third quarter of FY24.

The merger is a win-win for both and will allow the bank to expand its housing loan portfolio and expand its client base.

Deepak Parekh, the chairman of HDFC, described it as a merger of equals. HDFC shareholders will receive 42 shares of the bank for every 25 shares they own.

The combined entity will have a market capitalization of Rs 12.8 lakh crores and a balance sheet of Rs 17.9 lakh crores.

HDFC Bank CEO Sashidhar Jagdishan had said that the merger has the blessings of everyone. “A merger of this scale before we announced it had the blessings of the regulator, the Ministry of Finance and even the Prime Minister’s Office,” Jagdishan said. “It was an in-principle approval, it is not that they would give it to you in writing.”

Jagdishan added that the banking regulator had asked it to keep the structure of the merged entity simple, with HDFC Bank being the holding company.

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