HDFC and HDFC Bank, 2 of corporate India's most respected entities will be merging to form one even bigger company.
Wait, these are 2 separate companies?
Yes. HDFC Bank is a bank. And we all know about it.
Housing Development Finance Corporation (HDFC) on the other hand is a non-bank finance company or NBFC. This is actually the original company that was formed with gov support in the 1970s as the first specialized mortgage lender in India.
As business grew, they created a full-scale bank in 1994 called HDFC Bank. But the home loan (mortgage) business remained in the original company HDFC. Now, after all these years they've decided to bring everything together under 1 company.
What happens next?
If/when the deal goes through, HDFC will be merged with and into HDFC Bank.
This will mean the bank will be able to build its home loan portfolio and expand its existing customer base. For HDFC, the biggest gain will be access to low-cost funding and the huge customer base of HDFC Bank.
HDFC Bank will then be 100% owned by public shareholders and existing shareholders of HDFC will own 41% of HDFC Bank. Shareholders of HDFC will get 42 shares of HDFC Bank for every 25 shares of the non-banking lender held by them
The management of HDFC Bank will continue to run the combined entity and Sashidhar Jagdishan will remain the CEO of the whole thing.
Keki Mistry, who is currently head of HDFC, will stay in his role until the merger is complete, but we're not sure what he'll do after. Plenty of time to figure that out because they think it will 14-18 months to conclude the deal.
Fun Fact - One of the promoters of HDFC was the Industrial Credit and Investment Corporation of India, which later evolved into ICICI Bank.
Fun Fact #2- The market cap of the combined HDFC entities will be around Rs12.9 lakh crores, making it the third-largest listed company in India, and twice the size of ICICI Bank.