HDFC-HDFC Bank merger: How does it affect consumers?

HDFC Ltd and HDFC Bank will continue to operate as separate companies for some months till the amalgamation is complete.

What the HDFC-HDFC Bank merger is likely to mean for you

You might have heard the news already: HDFC Limited, India’s largest housing finance company, is going to merge with HDFC Bank, the country’s largest private sector bank by assets. Neither of these entities is small; HDFC Ltd has Assets Under Management (AUM) worth Rs 5.26 trillion and a market cap of Rs 4.44 trillion, while HDFC Bank enjoys a market cap of Rs 8.35 trillion.

So what does an HDFC-HDFC Bank merger mean for customers and existing shareholders of HDFC? Will they benefit from it? What about interest on deposits? In particular, what will be the home loan interest rate applicable post-merger? And what about mutual fund investors with exposure to either of these two entities?

Also Read: Mutual Funds: A Powerful Investment Tool For Single Mothers

The big picture

The HDFC-HDFC Bank deal is expected to be finalised in the next 15-18 months, or the second or third quarter of 2023-24, by when the requisite regulatory approvals will have come though. Until then, HDFC Ltd and HDFC Bank will continue to operate as discrete entities.

So far, the two entities have primarily focused on the management structure of the amalgamated unit, integration of businesses, benefits for both sides, etc. However, operational details such as interest rates and shifting of accounts from HDFC Ltd to HDFC Bank have not yet been formalised.

Also Read: Best Rates For Corporate Fixed Deposits To Invest In India

Significance for depositors

Experts say it is too early to comment on possible interest rates as the final merger is many months away. However, as a deposit is basically a contract between the depositor and the bank, all terms and conditions for the term deposit (including the deposit rates) will continue to hold until the maturity of the deposit.

So, if a deposit is scheduled to mature on a certain date, the annual interest rate will remain constant till maturity even if the merger is formalised during the term of the deposit. But if a depositor wishes to renew on maturity once the merger is formalised or make a fresh term deposit investment, the new deposit rates will come into play.

Significance for borrowers

HDFC Bank’s cost of funds is lower than that of HDFC Ltd. So, home loan customers of HDFC Ltd are likely to enjoy the benefits of these less costly funds post-merger, along with lower interest rates. There will be other changes as well, such as in the account numbers of HDFC Ltd customers, but it is too early to say what these will be or how customers will be affected.

New home loan customers could get home loans at a similar or lower interest rate. Industry experts say the benefits will depend on the interest rates in the system when the merger is being formalised.

Also Read: Getting A Home Loan? Know These Home Loan Charges Before You Apply

Significance for mutual fund investors

Diversified mutual funds cannot invest more than 10% in an individual stock. However, there are several funds that have allocation towards both the HDFC entities, which may collectively cross 10%. So, the HDFC-HDFC Bank merger might lead to a sell-off from a few mutual funds. 

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