HDFC Bank's mega merger propels it to the ranks of global banking titans
New Delhi, June 30: HDFC Bank Ltd. and Housing Development Finance Corp. (HDFC) have completed their merger, propelling the Indian company into the ranks of the world's most valuable banks. With a market capitalisation of approximately $172 billion, the newly formed entity now stands as the fourth-largest bank globally in terms of equity market capitalisation, trailing only JPMorgan Chase & Co., Industrial and Commercial Bank of China Ltd., and Bank of America Corp.
The merger, effective from July 1, brings together HDFC Bank and HDFC, resulting in a banking giant with over 120 million customers, exceeding the population of Germany. Additionally, the merged entity will expand its branch network to more than 8,300 and employ over 177,000 individuals.
In terms of market capitalisation, HDFC Bank surpasses renowned banks such as HSBC Holdings Plc and Citigroup Inc. It also leaves behind its Indian counterparts, State Bank of India and ICICI Bank, which had market capitalisations of approximately $62 billion and $79 billion, respectively, as of June 22.
According to Suresh Ganapathy, the head of financial services research for India at Macquarie Group Ltd.'s brokerage unit, there are few banks worldwide that can aspire to double in scale and size over a four-year period. Ganapathy expressed confidence in HDFC Bank's growth prospects, citing expectations of 18 per cent to 20 per cent growth, strong visibility in earnings, and plans to double the branch network within the next four years. He emphasised that HDFC Bank will remain a formidable institution.
The merger presents an opportunity for HDFC Bank to further expand its deposit base, building on its track record of outperforming peers in garnering deposits. By leveraging the existing customer base of HDFC, the mortgage lender, the bank aims to attract more customers to open savings accounts. Additionally, the merger enables HDFC Bank to offer its clients in-house home loan products, as only 2 per cent of them currently have a mortgage product from HDFC Ltd.
Investor confidence in HDFC Bank remains high, with its contingent convertible bonds, considered the riskiest type of debt, outperforming global peers. The bank's perpetual dollar notes have provided investors with a return of 3.1% so far this year, while Bloomberg's index of global banks' coco bonds experienced a loss of 3.5%. Notably, HDFC Bank counts JPMorgan among its largest investors.
In terms of stock performance, HDFC Bank shares have shown modest gains compared to the NIFTY Bank index over the past year. Analysts, including Suresh Ganapathy, emphasize that the stock's performance will depend on sustaining a 2 per cent return on assets, achieving strong loan growth, and fulfilling management's commitments post-merger. If HDFC Bank delivers on these fronts, the stock is expected to re-rate positively.
In summary, the merger between HDFC Bank and Housing Development Finance Corp. has propelled the Indian company into the ranks of the world's most valuable banks. With an expanded customer base, increased branch network, and promising growth prospects, HDFC Bank aims to maintain its position as a formidable institution and deliver strong financial performance in the future.
- With inputs from agencies
