HDFC Bank - HDFC Ltd merger may happen sooner than expected

The proposed merger between HDFC Bank and HDFC Ltd to create a private banking behemoth has already got the approval from the CCI and also the RBI. Now the company that will survive the merger, HDFC Bank, has hinted that it could complete its planned merger with HDFC Ltd earlier than anticipated. Originally, the deal was supposed to be completed by the third quarter of FY24, but now HDFC Bank is confident of completing the merger by the first quarter of FY24 itself. It could happen about 3-4 months ahead of schedule, due to the approvals coming in quicker than expected. 

It may be recollected that on the 04th of April India’s largest private sector bank and the largest housing finance company had announced to merge. The deal was worth and the combined entity will not only create the largest private bank in India by a margin, but also widen the market capitalization gap that HDFC Bank already enjoys over the second most valuable bank in India, i.e. ICICI Bank. With the NCLT (National Company Law Tribunal) approval also coming through, the bank has been asked to convene the meeting of shareholders by the end of November so as to get final shareholder approval for merger. 

The NCLT process alone, it is estimated cold take about 8-9 months after the shareholder approval has been obtained by the bank for the merger. Now the CFO of HDFC Bank, Srinivasan Vaidyanathan, has expressed confidence that with most of the approvals coming in and only the shareholder approval pending, the entire process may be competed by the first quarter of FY24; a good 4-5 months ahead of the original schedule. HDFC Bank has continued its frenetic growth in the meanwhile, adding 121 branches during Q2FY23 and a total of 157 branches overall in H1FY23. Its total branch network stands at 521 currently.

But the bigger challenges for HDFC Bank would be on the regulatory compliance side and the reduction of leverage on the balance sheet. For instance, the bank is looking at deposit mobilization drive to repay the loans taken by HDFC after the merger. HDFC Bank is also planning to seek the approval of the RBI for some concessions on the merger deal. There are several conditions pertaining to the capital adequacy, priority sector lending and the ownership issues that have to be sorted. However, to be on the safer side, the bank is planning to seek more time to meet these targets, considering the size of the issue.

Overall, it will be a litmus test for the bank, for the NCLT and also for the RBI since a merger of such magnitude and such complexity has never been handled before. It is a big chain of process, approvals, procedures and compliance. The regulators have till now been extremely quick to facilitate the deal in the best way possible. Going ahead, it remains to be seen how the regulators and the government enable the merger to go through without any further hiccups. Till now it has been relatively smooth and a large part of the credit should go to the internal processes of the bank and the more business friendly government.