MUMBAI: The merger of HDFC with HDFC Bank could significantly narrow the gap in the loan book and certain key financial metrics of the combined entity versus the country’s largest lender SBI once the scheme of amalgamation gets all the regulatory approvals in the next 12-18 months.
For instance, a comparison of the second quarter of FY22’s loan book between SBI and the pro-forma merged entity shows the gap in advances narrowing to almost Rs 9 lakh crore from Rs 13.5 lakh crore if only HDFC Bank’s loans are taken into account. Similarly, the merged entity’s net interest income would be almost 70% of SBI’s NII against just 56% that HDFC Bank alone would have accounted for, based on an institutional brokerage report by Systematix.
On the P&L front the pre-provisioning operating profit of the merged entity could potentially exceed that of the country’s largest bank. The combined entity’s PPoP stands at Rs 20,900 crore against that of SBI’s Rs 18,079 crore. HDFC Bank’s PPoP in the period under review was actually lower at Rs 15,800 crore while the mortgage lender’s PPoP was just Rs 5,100 crore.
Once the merger gets all the regulatory approvals it will result in a financial behemoth with a loan book second only to SBI’s. Based on the latest quarter (Q3FY22), the loan book of the pro-forma merged entity would be almost Rs 18 lakh crore against SBI’s Rs 26.6 lakh crore.The mortgage lender will get access to the bigger distribution network of the bank with over 6300 branches and its low cost funds, while HDFC Bank can offer HDFC’s mortgage product to 70% of its 6.8 crore customers who don’t have a home loan from HDFC.
To be sure, meeting reserve requirements like CRR and SLR will be a challenge with Macquarie estimating that HDFC Bank will have an excess SLR and CRR asset requirement of Rs 70000-80000 crore , besides an incremental Rs 90000 crore agriculture portfolio, based on 18% of borrowings, to meet RBI’s priority sector lending norms.
“While nothing can be said of branches yet as the entities will operate independently until the effective date, the merger creates potential benefits and challenges for the merged HDFC Bank,” said Sunil Pachisia, director, institutional sales, Pratibhuti Vinihit Ltd.
Financial behemoth
Once the merger gets regulatory approvals, it will result in a financial behemoth with a loan book second only to SBI’s