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Synergy behind HDFC merger

A search for ‘HDFC’ on Google first throws up the HDFC banking page.

Why this is important to call out is because while the parent company had started in 1977, HDFC Bank as its subsidiary began operations only in 1994.

That was just a Google result, younger brands better advertising, SEOs you see!

Let’s take a look at the market scenario. HDFC’s market capitalization at 4.36L cr is nearly 50% of HDFC Bank’s at 8.2L Cr.

Easy to say, the child did his parent proud and in most cases the child is better off on his own although an umbrella for the rains obviously never hurts. What brings to question then is with the umbrella enlarged what is really getting protected.

Here goes,

The banking market share.

With this merger the new entity will nearly double its asset base from its closest competitor ICICI Bank to around $340 billion.

The Bank had passed up ~70K Cr in 2021 in home mortgages to HDFC for which HDFC had access to capital at 6% while the bank’s cost was only 4%. They were losing an additional 2% on how they were structured and were unable to compete at lower margins like that of Kotak’s for home loans.

The bank stands to gain operational efficiencies with the additional 500 branches that will come with this merger.

All in all, this merger could be the torchbearer for future M&As in the banking sector.


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