In one press conference, HDFC, India’s Largest Private Housing Finance Institution, disclosed its plans for a Merger with its subsidiary HDFC Bank. This takes everyone into market Shock, and the market takes this very positively. And why not, This was the only remaining Parent Organisation that received a Banking license and Kept its Different identity. ICICI Bank merged With Industrial Credit and Investment Corporation of India. UTI Received a Banking license, But due to Their financial issue, They are already separated. HDFC and HDFC Bank Grow by keeping their Different paths. But now, this will soon be coming to an end.

In this post, I am keeping my View about Mergers.

Generally, Mergers of banking Companies are not Common. Once in a year or maybe less. A housing finance Company receives a Banking license, and growing In many other sectors is a big story. Mergers with Bank and NBFC are not new. IDFC Bank and Capital First, Bandhan Bank, and a subsidiary of HDFC, GRUH Finance, Happened in the past. But this is a little different. So take it with a pinch of salt.

 

Housing Development Finance Corporation is Deposit-taking NBFC…, so whenever It merges with Bank, They already have its NDTL. So Here comes an Extra 4% CRR And SLR. Around 18% Of that Deposit is needed to invest in Government securities.
As per RBI Rules, All Banks need to lend Primary sector; about 40% of the Loan book will go to Primary sector lending, Which is Low-Interest high-risk Loans. Exactly opposite of what HDFc Investor knows to date. When we Talk about the massive Size of HDFC, That 40% will also be high from the first day.

HDFC Bank is already part of DSBI. Domestic systematically essential institutions. Indian version of Too big to fail. As their balance sheet size will come close to SBI, I am sure RBI will tell them to keep 1% Extra Capital. Right now, It’s 0.5% that will increase Capital adequacy. As Both entities are Already adequately Capitalised, There will not be issued.

HDFC People know Finance. No one can teach them how to handle it but. When You have so long a History, It comes with a Business connection.
If I am not sure, Many Banks Sold Housing loans as a Product of HDFC. I am aware of Indusind Bank, India bulls Housing finance. So I am sure there must be more.
What will happen when Indusind bank shows them as Products of HDFC Bank after the Merger? One Bank selling Housing Loan as Product of Another Bank? How can that be possible?

We cant Forget GRUH Finance. GUJARAT Rural Housing Finance. Merged with Bandhan. So HDFC holds a stake with Bandhan Bank. It was more like Bandhan Bank asking HDFC To help As Their Promoter holding is Higher than Their Permitted Limit. So to keep their fundamental good and diversified loan book, They merged with GRUH. HDFC wanted to hold more in Bandhan and be a Part promoter, but RBI said NO. So the question is, will HDFC Bank own little more than 9% in another bank after the Merger? Will RBI accept that? Or will that stake be sold out? If yes, then this will be a Side effect on Bandhan bank.

One last question.
The legacy of Aditya Puri and DEEPAK Parekh Ji is enormous. After Aditya puri left, There were many issues. The question is, the Balance sheet is HDFC Bank is sheer even today.
Who will do the herculean Task of Lead A bank Which is Having so Diversified Business?
Leader in Mutual Fund, Having Standalone Subsidiary for Education loan which is showing success, Life Insurance, General Insurance, Pension Management plus keep on growing Its own business, Plus HDB Financial Services, Plus HDFC Securities?

I am not saying Shashidhar Jagdishan I incapable, but this Merger will change many things. What about that? Here we need to check one successful Model in a similar Bank or Financial Institution.

As A blogger, I studied the Financial Model of Kotak, Which started Looking comparable after the Merger.
NPAs of Kotak are very Much low, and So does For HDFC Bank. But Loan Book Growth For Kotak is low. Because In many cases, Uday Kotak himself Approved Loans.
Kotak Bank is Not Bank. It is Financial Institution; HDFC Bank is a Bank that Soon will find itself in the Role of a Holding Company.
How do Investors of HDFC Bank accept if their Return and growth are Lost For Making other Parts of the business successful.?

OK. I may be wrong in comparing Kotak and HDFC Bank. Hdfc Bank may look more like SBI without Government as the Biggest Shareholder or a Little better version of ICICI Bank, but As all Investors know, both have their issues. The subsidiary is listed. Subsidiaries need Capital. That maybe drag on HDFC Bank as Before, it was all supplied by HDFC. HDFC Had Low-Cost Capital with many Investments.

I am not against the Merger. I am talking about all those Points as We all hold HDFC And HDFC bank as both are part of Nifty and Sensex, and so many Mutual fund schemes Hold them.