NEW DELHI: HDFC Financial institution's deliberate merger with its mother or father HDFC will make the financial institution twice the scale of ICICI Financial institution, whereas bolstering market share and diversifying revenues, S&P International Rankings mentioned on Monday. Within the greatest merger within the company historical past, India's largest housing finance firm HDFC will merge with the nation's largest personal lender HDFC Financial institution to create a banking behemoth.
As soon as the deal is efficient, HDFC Financial institution can be 100 per cent owned by public shareholders, and current shareholders of HDFC will personal 41 per cent of the financial institution, based on inventory change filings by the companies.
S&P mentioned the merger will possible lead to vital market-share good points for HDFC Financial institution, given HDFC (the mother or father) is the biggest financier of mortgages in India. It should increase HDFC Financial institution's loans by 42 per cent to Rs 18 lakh crore ($237 billion), rising the financial institution's market share to about 15 per cent, from 11 per cent presently.
"Whereas HDFC Financial institution will stay the second-largest financial institution in India post-merger, it is going to be twice the scale of ICICI Financial institution Ltd, the third-largest financial institution within the nation. HDFC Financial institution's bigger steadiness sheet might improve its wholesale lending alternatives," it mentioned.
State-owned SBI is the biggest financial institution within the nation.
The merger is topic to regulatory and different approvals and will take 12-18 months to finish, it mentioned.
"HDFC Financial institution Ltd's deliberate merger with its mother or father will enhance the India-based financial institution's market share and diversify its revenues," S&P mentioned in a press release.
It mentioned HDFC Financial institution's enterprise profile will diversify after the merger and the merged entity can have one-third of its portfolio in mortgage loans, in contrast with a reported 11 per cent now.
S&P mentioned the mixed entity's earnings might enhance over the following three to 5 years and the merger will present the financial institution with worthwhile cross-selling alternatives to HDFC's massive pool of shoppers.
"The merged financial institution will profit from economies of scale and an improved capability to lift funds at aggressive charges. It might additionally leverage HDFC Financial institution's digital capabilities and distribution community to drive operational efficiencies," it mentioned.
S&P expects the mixed entity's capitalization and asset high quality to be broadly consistent with these of HDFC Financial institution on a standalone foundation.
About 9 per cent of HDFC Ltd's portfolio contains loans to actual property builders, the place the asset high quality is weaker than for the remainder of the financial institution's portfolio. "In our view, HDFC Financial institution ought to be capable to soak up incremental dangers from this portfolio given its satisfactory capital and provisioning buffers," the US-based score company mentioned.