HDFC Bank, India’s largest private lender, has received the Reserve Bank of India's (RBI) nod for its merger with the parent and mortgage lender Housing Development Finance Corp Ltd (HDFC). 

With this, a major step has been cleared towards the completion of the merger process which will widen the bank’s lead in total loans with rivals like ICICI Bank and Axis Bank.

“HDFC Bank has received a letter dated 4 July 2022 from the Reserve Bank of India (RBI) whereby the RBI has accorded its no objection for the scheme, subject to certain conditions as mentioned therein," HDFC Bank said in a regulatory filing.

The merger is expected to close in 18 months and is subject to various statutory and regulatory approvals, including approvals from the Competition Commission of India, the National Company Law Tribunal (NCLT), other applicable authorities and the respective shareholders and creditors of the companies involved.

Last week, both BSE and NSE gave their green signal to the proposed merger.

In April, HDFC Bank and HDFC had announced a merger deal to gain in size, save costs through synergies and allow cross-selling of products to a captive customer base.

As per the current arrangement, HDFC Bank sources home loans to HDFC Ltd and charges a fee for the transactions. HDFC approves and disburses the home loans. The bank has the option to purchase up to 70% of the fully-disbursed loans. 

As of 31 December, the merged entity‘s loan book stood at Rs 17.9 trillion compared to ICICI Bank’s Rs 8.14 trillion and Axis Bank’s Rs 6.65 trillion.

After the merger sails through all regulatory approvals, HDFC Bank will become a 100% publicly owned institution, with HDFC's 21% promoter holding getting extinguished.

Every HDFC shareholder will receive 42 shares of HDFC Bank for every 25 shares held.

The merged entity will be twice the size of ICICI Bank, the country's second-largest private bank, while the gap between HDFC Bank and market leader State Bank of India (SBI) will narrow.

Sashidhar Jagdishan, the managing director and CEO of HDFC Bank, will lead the merged entity.