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Housing loan major Housing Development Finance Corporation (HDFC) on Monday, 4 April, said that its board has approved the merger of its wholly owned subsidiaries HDFC Investments and HDFC Holdings with HDFC Bank.
Upon the merger scheme becoming effective, the subsidiaries or associates of HDFC will become subsidiaries or associates of HDFC Bank.
Summing up the deal, veteran banker and HDFC Ltd Chairman Deepak Parekh said, "As the son grows older, he acquires the father's business. This is a friendly merger. We won't be thrown out."
Reacting to the news of the merger, shares of HDFC and HDFC Bank rose as high as 14 percent and 11 percent, respectively, during Monday's opening session.
But how did industry experts react to the merger?
Former SEBI Chairman M Damodaran said that it would be positive for all stakeholders, adding that it should have happened earlier, "but better late than never".
Speaking to Moneycontrol, Ajay Piramal, chairman of Piramal Group termed the merger a "tremendous event", adding that it is a culmination of Parekh's contribution to the Indian financial services industry.
Dr. Ravi Singh-Vice President and Head of Research, ShareIndia said that the merger of HDFC Bank and HDFC is a complement to investors and a value addition to HDFC Bank, reported Business Today.
Pramod Kumar, Managing Director & Head of Banking, Barclays India pointed out that the merger has benefits for both parties, with the bank completing its suite of products, and HDFC receiving access to lower-cost funding.
According to BloombergQuint, S&P Global Ratings said that the merger would give HDFC Bank a booster shot, pointing out that while it would remain the second-largest bank in India, but will also become twice the size of ICICI Bank. It also said that the merged entity would be better placed to raise funds at competitive rates.
The merger of HDFC into the HDFC Bank will enable value unlocking for the latter in order to build a solid housing loan portfolio by enhancing its existing customer base, said brokerage house Axis Securities.
"Further, this merger enables confidence in the Indian economy and looks for a brighter long-term picture beyond the ongoing Russia-Ukraine conflict and the rising inflationary concerns," said Naveen Kulkarni, Chief Investment Officer at Axis Securities, according to IANS.
"This mega-merger will correct the recent underperformance of the HDFC twins. The stock prices of HDFC twins are likely to remain firm even after this morning's sharp spike," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
The merged entity will gain from the synergies of the merger, Vijayakumar said.
(With inputs from Moneycontrol, Economic Times, Business Today, BloombergQuint, and IANS.)
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