MUMBAI: The largest housing finance company HDFC Ltd (HDFC) and HDFC Bank Ltd (HDFC Bank) today announced that their respective boards have approved an amalgamation of HDFC Investments and HDFC Holdings with HDFC and that of HDFC into HDFC Bank.

As part of the merger between HDFC and HDFC Bank, 42 shares of HDFC Bank would be given for every 25 shares of HDFC.

Making the surprise announcement of the creation of a financial giant HDFC Bank, HDFC chairman Deepak Parekh said that it was a merger as one of the equals, and on harmonisation of rules between banks and non-banks which reduces the regulatory arbitrage was one of the key factors which influenced the decision for the merger between the two group entities.

Addressing a hurried called press conference Parekh said the amalgamation which is subject to regulatory approvals, especially from the central bank will take between 12-18 months and humorously added they were able to keep the news in close quarters and even the media failed to predict such a large announcement.

Parekh was right in the sense that the same was in the realm of speculation for several years but no one had predicted the timing of such a move. 

Giving details of the merger plan Parekh said that the combined balance sheet of the merged entity will be a whopping Rs 17.87 lakh crore and the net worth will be Rs 3.3 lakh crore, Parekh added that the merger will not impact employees of HDFC, which is set to be merged into HDFC Bank.

According to banking experts, this merger of the two largest financial entities will be by and large one of the largest mergers in the country and as a merged entity HDFC Bank will not only become one of the largest banks in the country but also in the world and the combined market capitalisation might propel it to the likes of Bank of America and Chinese Banks. 

During the announcement, Atanu Chakraborty, Chairman of HDFC Bank, said, "The product and market leadership of HDFC in the housing finance business and the distribution and customer leadership of HDFC Bank enable the combined entity to offer a full suite of financial products to Indians at large and the proposed transaction is a big step in realizing the vision of housing for all as envisioned by our government."

Speaking about the merger, Keki M. Mistry, Vice-Chairman and CEO of HDFC said that this transaction helps in realizing the potential of what HDFC’s housing finance business can achieve by leveraging the distribution and customer base of HDFC Bank. "It is a step in the right direction, taken at the right time, for value creation for all the stakeholders," he added.

Sashi Jagdishan, CEO & MD, HDFC Bank said, "The proposed transaction ticks all the right boxes in terms of completion of product offerings, product leadership in home loans as with other retail assets products, distribution strength across the country and a customer base that can be leveraged to cross-sell a complete suite of financial products."

HDFC Bank currently has more than 68 million customers, 6,342 branches and its current advances stand at Rs 12,68,863 crore, while that of HDFC stands at Rs 5,25,806 crore. The combined advances of HDFC Bank will stand at Rs Rs 17,86,669 crore after the merger.