MUMBAI, Apr 04 (Reuters): India's largest private lender HDFC Bank is buying its biggest shareholder in a $40 billion deal, the country's biggest ever, creating a financial services titan to better tap rising demand for credit.
HDFC Bank's deal with housing finance firm HDFC Ltd, which owns about 21 per cent of the lender, will build on its 68 million customers and expand its home loan portfolio significantly while also opening up the scope for larger loans.
It will also help HDFC Bank shrink the gap with state-run lender and bigger rival State Bank of India while boosting competition in the home loan space as people step up purchases with pandemic woes receding.
The deal will be beneficial for both companies but particularly HDFC Ltd, said Asutosh Mishra, research analyst at Ashika Stock Broking.
"(HDFC Ltd) was competing with the likes of State Bank of India in a competitive home loan market, leading to pressure on margins due to disadvantages to its cost of funds," he said.
Following a 2018 crisis in the non-banking finance sector that shook India's financial system, the central bank issued guidelines in November allowing well-run large shadow lenders to be converted into banks.
HDFC Bank shares closed 10 per cent higher on Monday, giving the firm a market value of 9.18 trillion rupees ($121.66 billion), while HDFC Ltd surged 9.3 per cent to a valuation of 4.85 trillion rupees.
HDFC Ltd shareholders will receive 42 shares of the bank for 25 shares held, giving them ownership of 41 per cent of HDFC Bank, which will become a full-fledged public company as the housing finance company's stake in the lender will be cancelled in the deal.
HDFC Bank creates Indian lending behemoth in $40b deal
FE Team | Published: April 04, 2022 23:39:01
HDFC Bank creates Indian lending behemoth in $40b deal
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