HDFC Ltd, India’s largest housing finance company, is merging with HDFC Bank, the country’s largest private sector bank by assets, to create a behemoth. This will include the subsidiary or associates of HDFC Ltd.

While HDFC Ltd has assets under management (AUM) worth Rs 5.26 trillion and a market cap of Rs 4.44 trillion, HDFC Bank has a market cap of Rs 8.35 trillion.

As per the share swap ratio, shareholders of HDFC Ltd will receive 42 shares of HDFC Bank for 25 shares of HDFC Ltd.

Post-merger, HDFC Ltd’s shareholding in HDFC Bank will be extinguished. HDFC Bank will be 100% owned by public shareholders. Existing shareholders of HDFC Ltd will own 41% of HDFC Bank.

The combined balance sheet of Rs 17.87 trillion and Rs 3.3 trillion will ensure larger underwriting at scale.

“Larger balance sheet and capital base will enable larger ticket loans, including infrastructure loans. That is the urgent requirement of the country,” HDFC Chairman Deepak Parekh said while emphasizing that the merger will not only strengthen the entity against its competitors but also make its offerings more competitive.

The mortgage business will benefit from the lower cost of funds that will be available to it due to the merger, Parekh told reporters.

HDFC Bank said the transaction is expected to close over the next 18 months, subject to completion of regulatory approvals and other customary closing conditions.

“This is a merger of equals. We believe that the housing finance business is poised to grow in leaps and bounds due to the implementation of RERA, infrastructure status to the housing sector, government initiatives like affordable housing for all, amongst others,” Parekh said.

“Over the last few years, various regulations for banks and NBFCs have been harmonised, thereby enabling the potential merger. Further, the resulting larger balance sheet would allow underwriting of large ticket infrastructure loans, accelerate the pace of credit growth in the economy, boost affordable housing and increase the quantum of credit to the priority sector, including credit to the agriculture sector,” he added.

HDFC Bank managing director and CEO Sashidhar Jagdishan 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. It is value accretive for all the stakeholders of both the organisations, including shareholders, employees and customers.”

As on December 31, 2021, HDFC Ltd has total assets of Rs 6,23,420.03 crore, turnover of Rs 35,681.74 and net worth of Rs 1,15,400.48 crore as on December 31, 2021.

HDFC Bank has total assets of Rs 19,38,285.95 crore as on December 31, 2021, turnover (includes other income) of Rs 116,177.23 crore for the nine months ended December 31, 2021, and net worth of Rs 223,394.00 crore as on December 31, 2021.