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HDFC and HDFC Bank will not merge - Views on News from Equitymaster
 
 
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  • Jan 20, 2000

    HDFC and HDFC Bank will not merge

    In an interview with the chairman of HDFC, India's largest housing finance company it was announced that HDFC and its banking subsidiary HDFC Bank will not merge as the existing RBI guidelines are not conducive to the merger of two companies. However both entities will continue to work closely so as to leverage each others' strengths.

    HDFC (FY99 Total Income Rs 17.5 bn) is the largest housing finance company in India with a 55% market share. It operates 41 offices and has a field force of more than 42,000 commission agents who mobilize retail deposits.

    Apart from the RBI guidelines which does not currently favour a merger the chairman is also of the opinion that the liquidity requirements are different for housing finance companies and banks and the merged entity may not have enough liquidity for an aggressive lending programme. In a related development to reduction in interest rates, the company stated that the bank would at most reduce their lending rates by 50 basis points to 13%.

    However given the international trend towards universal banking the day might not be very far when in India too mergers between banks and specialized institutions take place. In the case of HDFC though the liquidity requirements of the two businesses might be different, it might in future not be difficult for the company to raise money which matches its asset maturity. The merger would also be beneficial as both the bank and the housing finance institution can leverage upon its distribution strength. The merger might also be beneficial in terms of lowering the cost of delivery. Hence though the regulations

    Market View:
    HDFC has always been a favorite of analysts and fund managers as it has an excellent asset quality and a good management. The FIIs have already exhausted their 30% investment limit in the company.

     

     

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