- Date : 27/05/2022
- Read: 6 mins
Since the announcement of the HDFC-HDFC Bank merger, stakeholders have had numerous queries. This article aims to address some of their concerns.
The managements of HDFC Ltd. and HDFC Bank announced their proposed merger on 4 April 2022. The merger will impact various stakeholders, such as shareholders, depositors, borrowers, vendors, mutual fund investors, and the entire financial ecosystem. This article will focus on the impact of the merger on customers, i.e., depositors and borrowers.
Nothing changes for customers till the amalgamation is completed
As of now, the merger has just been announced. HDFC Ltd. and HDFC Bank will now have to take approvals from various regulators and other entities such as the Reserve Bank of India (RBI), SEBI, IRDAI, Competition Commission of India (CCI), stock exchanges, shareholders, etc. These approvals are expected to take 15-24 months. Till the proposed merger is complete, nothing changes for the customers. So, as of now, existing customers have nothing to worry about.
1) Impact on depositors
We will discuss the impact on depositors in two phases: (a) When the merger approvals are in process and (b) When the merged entity starts operating.
a) When the merger approvals are in process
Till the merged entity starts operating, there will be no impact on depositors. So, if you are an HDFC Ltd. depositor, while the merger approvals are in process, your fixed deposit(s) will continue operating the same way they did earlier. If your fixed deposit matures, you can withdraw or renew. The renewal will be done based on the interest rate and other terms offered by HDFC Ltd.
As with HDFC Ltd. depositors, there will be no impact on HDFC Bank depositors when the merger approvals are in process.
b) When the merged entity starts operating
Once the merged entity starts operating, there will be no impact on HDFC Bank depositors as the merged entity will operate as HDFC Bank. The management has stated that all HDFC Ltd. branches will be converted to HDFC Bank branches.
Once the merged entity starts operating, and HDFC Ltd. accounts are converted to HDFC Bank accounts, your HDFC Ltd. fixed deposit will get converted into an HDFC Bank fixed deposit. However, all the terms of the original fixed deposit will continue. For example, the fixed deposit tenure, interest rate, etc., offered by HDFC Ltd. will remain unchanged till maturity. You may be assigned an HDFC Bank closest to you based on your residential address.
Once the original fixed deposit issued by HDFC Ltd. matures, you will have the option to withdraw the money or renew the fixed deposit with HDFC Bank. HDFC Bank interest rates, tenures, and other terms and conditions will apply if you choose to renew.
Also Read: Bank FD Vs FD Offered By NBFC
2) Impact on borrowers
As with depositors, we will discuss the impact on borrowers in two phases: (a) When the merger approvals are in process and (b) When the merged entity starts operating.
a) When the merger approvals are in process
Until the merged entity starts operating, there will be no impact on borrowers. So, if you are an HDFC Ltd. home loan borrower, while the merger approvals are in process, your loan will continue to operate as it did earlier. If you have repaid your home loan fully, you can complete the account closing formalities with HDFC Ltd.
If you are a new customer who wishes to apply for a home loan, you can approach an HDFC Ltd. branch or apply online on the HDFC Ltd. website. All the current HDFC Ltd. terms and conditions will apply for a new home loan, and HDFC Bank will have no role to play in this.
As with HDFC Ltd. borrowers, there will be no impact on HDFC Bank borrowers when the merger approvals are in process.
b) When the merged entity starts operating
Once the merged entity starts operating, there will be no impact on HDFC Bank borrowers as the merged entity will operate as HDFC Bank.
Once the merged entity starts operating, it may convert HDFC Ltd. loan accounts into HDFC Bank loan accounts. So, your HDFC Ltd. home loan may get converted into an HDFC Bank home loan. Non-banking finance companies (NBFCs) are not required to link their retail loans to an external benchmark, so an HDFC Ltd. customer's home loan is not linked to an external benchmark as of now.
However, once the merged entity comes into the picture, existing HDFC Ltd. home loan customers may be given the option to link their home loans to an external benchmark such as the repo rate. The details will become clearer as we move closer to the merger (or after the merger becomes effective).
If you are a new customer who wishes to apply for a home loan, post the merger, HDFC Bank will offer you a home loan linked to an external benchmark. HDFC Bank has a high share of Current Account Savings Account (CASA) deposits, and hence their cost of funds is low. This may result in new home loan customers getting loans at a slightly lower rate than what HDFC Ltd. could have provided them. However, the final interest rate will depend on the prevailing market interest rates at that time.
Also Read: Getting A Home Loan? Know These Home Loan Charges Before You Apply
3) Cross-selling opportunities for customers of both entities
At a press conference, the management of both entities stated that there is a lot of scope to cross-sell products to customers of both. Here’s the takeaway:
a) Around 70% of HDFC Ltd. customers don’t have a bank account with HDFC Bank
Once the amalgamation is complete, all HDFC Ltd. customers will become HDFC Bank customers. So, HDFC Ltd. customers can be offered a wide range of HDFC Bank product offerings such as savings accounts, fixed deposits, credit cards, personal loans and other loans, remittances, and other services. HDFC Bank can also offer HDFC Ltd. customers third-party products such as mutual funds, life insurance, general insurance, gold, etc.
b) Around 80% of HDFC Bank customers don’t have a home loan
With the expertise of the staff of HDFC Ltd., HDFC Bank will be able to offer home loans to their customers. Once the combined entity is in place, the home loan sanction and disbursement process will be sped up.
A benefit for HDFC Ltd. customers will be access to the HDFC Bank branch network. HDFC Ltd. currently has a limited number of branches compared to the HDFC Bank nationwide network. So, post amalgamation, HDFC Ltd. customers would benefit from the huge HDFC Bank branch network for any services related to their deposits, home loans, etc.
Also Read: Why Make Women The Primary Or Co-Applicant When Availing Of Housing Loans?
Conclusion
As discussed earlier, HDFC Ltd. depositors will continue to get the existing deposit rates pre- and post-merger till the deposit matures. Post-merger, in case of matured deposits, they can either withdraw the money or renew at HDFC Bank interest rates. For existing borrowers of HDFC Ltd., nothing changes until the amalgamation. Post-merger, existing borrowers may be given an option to shift to HDFC Bank home loans. Post-merger, if a customer wants to apply for a new home loan, they will have to take it from HDFC Bank. Lastly, there will be cross-selling opportunities for existing customers of both entities.
The managements of HDFC Ltd. and HDFC Bank announced their proposed merger on 4 April 2022. The merger will impact various stakeholders, such as shareholders, depositors, borrowers, vendors, mutual fund investors, and the entire financial ecosystem. This article will focus on the impact of the merger on customers, i.e., depositors and borrowers.
Nothing changes for customers till the amalgamation is completed
As of now, the merger has just been announced. HDFC Ltd. and HDFC Bank will now have to take approvals from various regulators and other entities such as the Reserve Bank of India (RBI), SEBI, IRDAI, Competition Commission of India (CCI), stock exchanges, shareholders, etc. These approvals are expected to take 15-24 months. Till the proposed merger is complete, nothing changes for the customers. So, as of now, existing customers have nothing to worry about.
1) Impact on depositors
We will discuss the impact on depositors in two phases: (a) When the merger approvals are in process and (b) When the merged entity starts operating.
a) When the merger approvals are in process
Till the merged entity starts operating, there will be no impact on depositors. So, if you are an HDFC Ltd. depositor, while the merger approvals are in process, your fixed deposit(s) will continue operating the same way they did earlier. If your fixed deposit matures, you can withdraw or renew. The renewal will be done based on the interest rate and other terms offered by HDFC Ltd.
As with HDFC Ltd. depositors, there will be no impact on HDFC Bank depositors when the merger approvals are in process.
b) When the merged entity starts operating
Once the merged entity starts operating, there will be no impact on HDFC Bank depositors as the merged entity will operate as HDFC Bank. The management has stated that all HDFC Ltd. branches will be converted to HDFC Bank branches.
Once the merged entity starts operating, and HDFC Ltd. accounts are converted to HDFC Bank accounts, your HDFC Ltd. fixed deposit will get converted into an HDFC Bank fixed deposit. However, all the terms of the original fixed deposit will continue. For example, the fixed deposit tenure, interest rate, etc., offered by HDFC Ltd. will remain unchanged till maturity. You may be assigned an HDFC Bank closest to you based on your residential address.
Once the original fixed deposit issued by HDFC Ltd. matures, you will have the option to withdraw the money or renew the fixed deposit with HDFC Bank. HDFC Bank interest rates, tenures, and other terms and conditions will apply if you choose to renew.
Also Read: Bank FD Vs FD Offered By NBFC
2) Impact on borrowers
As with depositors, we will discuss the impact on borrowers in two phases: (a) When the merger approvals are in process and (b) When the merged entity starts operating.
a) When the merger approvals are in process
Until the merged entity starts operating, there will be no impact on borrowers. So, if you are an HDFC Ltd. home loan borrower, while the merger approvals are in process, your loan will continue to operate as it did earlier. If you have repaid your home loan fully, you can complete the account closing formalities with HDFC Ltd.
If you are a new customer who wishes to apply for a home loan, you can approach an HDFC Ltd. branch or apply online on the HDFC Ltd. website. All the current HDFC Ltd. terms and conditions will apply for a new home loan, and HDFC Bank will have no role to play in this.
As with HDFC Ltd. borrowers, there will be no impact on HDFC Bank borrowers when the merger approvals are in process.
b) When the merged entity starts operating
Once the merged entity starts operating, there will be no impact on HDFC Bank borrowers as the merged entity will operate as HDFC Bank.
Once the merged entity starts operating, it may convert HDFC Ltd. loan accounts into HDFC Bank loan accounts. So, your HDFC Ltd. home loan may get converted into an HDFC Bank home loan. Non-banking finance companies (NBFCs) are not required to link their retail loans to an external benchmark, so an HDFC Ltd. customer's home loan is not linked to an external benchmark as of now.
However, once the merged entity comes into the picture, existing HDFC Ltd. home loan customers may be given the option to link their home loans to an external benchmark such as the repo rate. The details will become clearer as we move closer to the merger (or after the merger becomes effective).
If you are a new customer who wishes to apply for a home loan, post the merger, HDFC Bank will offer you a home loan linked to an external benchmark. HDFC Bank has a high share of Current Account Savings Account (CASA) deposits, and hence their cost of funds is low. This may result in new home loan customers getting loans at a slightly lower rate than what HDFC Ltd. could have provided them. However, the final interest rate will depend on the prevailing market interest rates at that time.
Also Read: Getting A Home Loan? Know These Home Loan Charges Before You Apply
3) Cross-selling opportunities for customers of both entities
At a press conference, the management of both entities stated that there is a lot of scope to cross-sell products to customers of both. Here’s the takeaway:
a) Around 70% of HDFC Ltd. customers don’t have a bank account with HDFC Bank
Once the amalgamation is complete, all HDFC Ltd. customers will become HDFC Bank customers. So, HDFC Ltd. customers can be offered a wide range of HDFC Bank product offerings such as savings accounts, fixed deposits, credit cards, personal loans and other loans, remittances, and other services. HDFC Bank can also offer HDFC Ltd. customers third-party products such as mutual funds, life insurance, general insurance, gold, etc.
b) Around 80% of HDFC Bank customers don’t have a home loan
With the expertise of the staff of HDFC Ltd., HDFC Bank will be able to offer home loans to their customers. Once the combined entity is in place, the home loan sanction and disbursement process will be sped up.
A benefit for HDFC Ltd. customers will be access to the HDFC Bank branch network. HDFC Ltd. currently has a limited number of branches compared to the HDFC Bank nationwide network. So, post amalgamation, HDFC Ltd. customers would benefit from the huge HDFC Bank branch network for any services related to their deposits, home loans, etc.
Also Read: Why Make Women The Primary Or Co-Applicant When Availing Of Housing Loans?
Conclusion
As discussed earlier, HDFC Ltd. depositors will continue to get the existing deposit rates pre- and post-merger till the deposit matures. Post-merger, in case of matured deposits, they can either withdraw the money or renew at HDFC Bank interest rates. For existing borrowers of HDFC Ltd., nothing changes until the amalgamation. Post-merger, existing borrowers may be given an option to shift to HDFC Bank home loans. Post-merger, if a customer wants to apply for a new home loan, they will have to take it from HDFC Bank. Lastly, there will be cross-selling opportunities for existing customers of both entities.
