Mudra Compass

Just 4-5 weeks away, the HDFC-HDFC Bank Ltd merger will result in a lower net interest margin (NIM) for the institution this year, brokerages said, the day after management met with analysts.

According to a study by Nomura analysts, the bank forecasts NIM, a crucial profitability metric, to decline as a result of the merger from 4.1% a year ago to 3.7%-3.8% in 2023–2024.

Nomura quoted the management, which was represented by HDFC Bank CEO Sashidhar Jagdishan, as saying that decreased loan costs and operating leverage will largely offset the impact.

To facilitate the merger, the Reserve Bank of India granted HDFC Bank some regulatory relief in April.

According to a Macquarie report, HDFC Bank’s management informed analysts that the bank anticipates maintaining a post-merger return on assets of 1.9% to 2.1% for 2023–24, compared to 2.1% in the previous financial year.

Deposit mobilization will remain a major area of concentration for the bank after the merger.

According to analyst sources, the management restated at the meeting its plans to add more than 1,500 branches annually for the next 4-5 years. Many of these will be located in rural and semi-urban regions.

According to the management, the bank is still confident that its future deposit growth will be 1.5–2 times that of the sector, while credit growth will be similar to the 19.5% 5-year average.

 HDFC Bank anticipates consistent growth in corporate banking, the management said, according to a Jefferies study.

According to the bank, this is a chance to take advantage of corporate partnerships for deposits and transaction banking, among other things.

Once the deal is effective, HDFC Bank will be 100 percent owned by public shareholders, and existing shareholders of HDFC will own 41 percent of the bank.

Earlier this year in April, the Monetary Authority of Singapore approved the merger of HDFC Investments and HDFC Holdings with parent HDFC Ltd s part of a composite scheme of amalgamation, Griha Pte, a wholly-owned subsidiary of HDFC Investments and a foreign step-down subsidiary of HDFC Ltd, received approval for the merger with HDFC Bank.

HDFC Ltd had already received approval letters including from the Reserve Bank of India, Securities and Exchange Board of India (Sebi), PFRDA, and Competition Commission of India (CCI) as well as from India’s stock exchanges BSE and NSE.

However, The HDFC-HDFC Bank merger is expected to be completed by the second or third quarter of FY24.

The goal is to gradually increase the number of bank branches offering house loans. In HDFC Bank (the combined firm), rather than HDFC, there will be more room for expansion in the housing credit market, according to Keki Mistry, Vice Chairman, and CEO.

The merger of HDFC and HDFC Bank has been in the news for some time. In reality, Parekh had stated in 2015 that his company may think about merging with HDFC Bank if the conditions were right.

A gratifying client connection will be made possible by the united business, which will combine the complementing qualities of the two organizations. Following the amalgamation, seamless mortgage offerings would be made to HDFC Bank customers. Additionally, HDFC Bank will make use of the long-term mortgage connection to provide a variety of credit and deposit products made possible by superior customer life-cycle information. All of the consumers of the combined firm will benefit from an improved value proposition and customer experience as a result.

On April 4 of last year, HDFC Bank agreed to acquire the largest domestic mortgage lender in a deal valued at approximately $40 billion, establishing a financial services colossus in what was dubbed the largest transaction in India’s corporate history. The aggregate asset base of the proposed business will be close to Rs 18 lakh crore.

What effect this merger will have on borrowers is the current question. The combined entity is being considered, and its name is HDFC Bank. There won’t be many changes in terms of the current HDFC Bank clients. However, the borrowers of HDFC, the largest private housing loan provider, will be impacted.

The housing financing corporation HDFC will transfer its home loan portfolio to HDFC Bank, a banking organization. Home loan benchmarking practices vary between banks and non-banking finance companies (NBFCs). Beginning in October 2019, banks must tie all floating-rate retail loans’ interest rates to a third-party benchmark. The RBI repo rate, a 3-month or 6-month Treasury bill, or any other market-linked benchmark published by Financial Benchmarks India Pvt Ltd may be used as the external benchmark.

However, NBFCs are not required to connect their retail loans to a third-party benchmark. Therefore, within six months of the merger being completed, the interest rates on HDFC’s home loans will be tied to an outside benchmark.

Borrowers will continue to pay their EMIs following their current repayment plans, and the terms and circumstances of their present loans are not likely to alter.

HDFC Bank would be in a position to borrow more money at lower interest rates and consequently might pass on the benefit to the customers. Banks, especially those with big CASA (Current Account and Saving Account) deposits, enjoy cheaper costs of capital. If the incentive is exclusively given to new consumers or even to existing ones, it would be a management decision.

Finally, the combination of HDFC Bank and HDFC Ltd will result in several modifications for current clients. But the adjustments are anticipated to be gradual.

(Source – Economic Times, Money Control, and Other Genuine Internet Sources)