Virendra Pandit
New Delhi: Not only have public sector banks in India merged to create larger, globally competitive entities, but even the private sector’s HDFC Ltd is also merging with its offspring, HDFC Bank, boosting investors’ confidence on Monday when Sensex soared beyond the 60,000 mark and Nifty crossed 18,000.
Sensex sprinted 1,335 points while Nifty topped 18,050.
HDFC Ltd and HDFC Bank stocks rallied up to 10 percent on the BSE in Monday’s intra-day trade after their respective boards approved the merger. As part of the deal, HDFC Ltd shareholders will receive 42 shares of the Bank for 25 shares held. Existing shareholders of HDFC Ltd will own 41 percent of HDFC Bank.
Share prices of HDFC Ltd and HDFC Bank zoomed about 10 percent to Rs 2,696 and Rs 1,656.90, respectively, on the BSE in intra-day trade.
The surprise merger announcement catapulted the benchmark indices beyond key psychological levels as hefty buying in the two index heavyweights lifted the market mood. The S&P BSE Sensex and the NSE Nifty50 surged over 2.5 percent intra-day and hit highs of 60,845 and 18,114, respectively. They, however, pared gains marginally to end at 60,612 and 18,053, respectively.
These gains were due mainly to the 10 percent rally in HDFC Bank and 9 percent in HDFC Ltd.
HDFC Ltd’s shares in HDFC Bank will cease to exist, making the Bank a full-fledged public company. The transaction is expected to be completed in 15-18 months, subject to regulatory approvals.
The merger of India’s largest housing finance company in the private sector with the biggest private sector bank will enable seamless delivery of home loans and leverage on the large base of over 68 million customers of the Bank and, inter alia, improve the pace of credit growth in the economy, HDFC Bank said in an exchange filing.
The proposed transaction will create a large balance sheet and net worth that would allow a greater flow of credit into the Indian economy. It will also enable the underwriting of larger ticket loans, including infrastructure loans, an urgent need of the country, reports said.
HDFC Ltd is a leader in the home loans space of the Low Income Group (LIG) and Middle Income Group (MIG) segments under the affordable housing initiatives of the Government of India. It would improve further access to housing finance for this category because of the low-cost funds available with HDFC Bank, the company added.
