Why did the HDFC twins decide to merge? Know the reason behind the merger

HDFC Ltd and HDFC Bank have decided to merge on July 1, 2023, thereby creating one large entity. The market capitalization of this mega entity will be Rs 14.37 lakh crore.

The merger will bring benefits to both customers and shareholders.

“All employees under the age of 60 are absorbed and do not have their salaries reduced. HDFC Bank will need our people because they have no knowledge of mortgage,” said Deepak Parekh, President of HDFC.

What could be the reasons behind this merger? Let’s find out.

Reasons behind the merger

Three main factors contributed to the twin companies moving toward a merger. Prevailing low interest rates have created a favorable environment for this move.

In addition, the CRR and SLR requirements have also been lowered from 27% to 22% by the RBI. In addition, high liquidity in the system is also one of the contributing factors.

According to one source, an additional element is also present. The closing of the management board at HDFC Ltd is also one of the reasons. That’s when the issue of succession arose. Thus, it can be concluded that merging HDFC Ltd into HDFC Bank will bring about the most optimal aggregate advantage.

How will HDFC take advantage of the merger?

The merger will benefit HDFC in many ways. Since HDFC’s business is not very profitable, the company is able to increase penetration of its products. In addition, funding costs may also be reduced as a result of this merger.

Not to be missed, HDFC will receive unparalleled benefits through its mortgage portfolio, thereby delivering a leap in distribution to rural or semi-urban areas with significant opportunities to bundle products. banking products for interested customers.

According to some analysts, the combined entity created from the merger will reap huge synergies, suitable for all shareholders and stakeholders.

However, some cost synergies will also be seen by the merged entity, making it difficult to see how the merger will play out as it helps the merged entity increase its market share.

Digital initiatives have troubled HDFC Bank. Plus, many of its retail banking divisions are actually under pressure from fintech companies. HDFC is under increasing pressure from public sector banks in the mortgage business. However, management lacks the resources to combat short-term challenges and rise above everyone else. Another advantage of the merger between HDFC Ltd. and HDFC Bank as HDFC’s borrowing costs will eventually come down. In such a situation, the giant entity formed from the merger would be cost-effective. It is also cumulative value for shareholders.

Speaking of share ownership, 42 shares of HDFC Bank will be awarded for every 25 shares of HDFC Ltd., as part of the merger.

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Source: pagasa.edu.vn

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