HDFC Bank branch in Mumbai, India on Friday, April 14, 2023.

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India’s largest private lender HDFC Bank completed the merger with Housing Development Finance Companythe nation’s largest mortgage lender, in a deal that pits the new entity against the world’s biggest banks.

The merger became effective on July 1, subject to shareholder and regulatory approval.

The combined entity will be the world’s fourth-largest bank by market capitalization — behind JPMorgan Chase, Industrial and Commercial Bank of China and Bank of America, said Soumya Rajan, CEO and founder of Mumbai-based Waterfield Advisors.

“This is a defining event in our journey and I am confident that our combined strength will enable us to create a holistic financial services ecosystem,” HDFC Bank CEO Sashi Jagdishan said on Friday.

“As we move forward, we will embrace challenges as opportunities, learn from our experiences and strive to be the benchmark for success and integrity in the financial services industry,” he said in a statement. Press Release.

Merger details

The merger took place on Saturday, about 15 months after the deal was first announced.

HDFC Bank announced in April last year that it will acquire its parent Housing Development Finance Corporation, India’s largest housing finance lender, in an all-stock deal worth $40 billion.

The merger was done effectively because of the “common culture” that the two companies have, said Nilesh Shah, managing director of Kotak Mahindra Asset Management.

HDFC shareholders will receive 42 shares of HDFC Bank for every 25 shares they own and HDFC will delist from the Indian stock market on July 13.

The new entity now has a market capitalization of about $172 billion, Rajan said, adding that it will become India’s second most valuable company by market capitalization after Reliance Industries.

Synergy

“These two powerhouses coming together should have a significant impact on the growth and expansion of the client base in the coming days,” Shah told CNBC.

“So for them, one plus one should be 11 and not two or three. They need to use those synergies to create an even better organization than what has already been created,” he said.

IN presentation to HDFC investorsthe mortgage lender outlined synergies including access to lower funding costs, operational efficiencies and a wider distribution network for HDFC.

There will also be cross-selling opportunities as 70% of HDFC customers do not have a bank account with HDFC Bank, according to the presentation. Moreover, of HDFC Bank’s 71 million customer base, “only 5% have a mortgage from other mortgage providers and only 2% have a mortgage from HDFC”.

Before the merger of the two entities, HDFC was “an organization that provided mortgages and home loans to the majority of people in India that they could never pursue in the past,” said Rajan of Waterfield Advisors.

The merger was “inevitable” and now gives customers access to a suite of services and a larger distribution network, she added.

Will there be more mergers and acquisitions?

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