India merger will not deal with overwhelming difficulties

HDFC Bank is 'absolutely' a buy, says wealth management firm

Revealed: The Secrets our Clients Used to Earn $3 Billion

The merger in between HDFC Bank and HDFC now makes the entity the world’s 4th biggest bank.

Nurphoto|Nurphoto|Getty Images

The merger in between India’s HDFC Bank and the Housing Development Finance Corporation (HDFC) will increase the entity’s client base and supply more chances for cross-selling, the non-executive director of HDFC Bank informed CNBC.

HDFC, India’s biggest home mortgage lending institution, combined with HDFC Bank, the nation’s greatest personal lending institution, in a $40 billion offer which worked on July 1.

“A merger between the two entities has always made an immense rationale,” Keki Mistry stated, including that the relocation will enhance the bank’s home mortgage portfolio and bring in more clients with a series of monetary services.

“Customers will now have the opportunity to receive customized products catering to their needs which only banks in India could offer,” Mistry stated in an e-mail to CNBC. “From the Bank’s point of view, it offers a massive opportunity to cross sell.”

Mortgage penetration

“One of the critical drivers of this merger is maximizing growth potential. The potential to deepen credit markets and mortgages in particular, in India is immense,” Mistry stated.

HDFC Bank has around 83 million clients however just 2% have a real estate loan with HDFC. An extra 5% of the bank’s clients have a real estate loan from other lending institutions, he stated discussing that it implies 93% of HDFC Bank’s clients do not have a mortgage.

This provides a “significant opportunity to cross sell and a potential to tap into the customer base that have not taken a housing loan at all,” the director stated, including that HDFC Bank will now have the ability to provide home mortgage services.

Mortgage penetration in India is “extremely low” and just represents around 11% of its GDP.

That’s much lower than 26% in China, and in between 20% to 40% in South East Asia, HDFC stated. Most established markets have more than 50% home mortgage penetration, the business included.

“Combining HDFC’s specialization in housing finance and leveraging HDFC Bank’s vast distribution and customer base will, in the long-term, aid in the deeper penetration of mortgage in India,” Mistry stated.

Other synergies

On the significance of the merger, Mistry stated: “The scale of the merger is huge be in terms of total assets, total deposits or market capitalization.”

The combined entity is now the world’s 4th biggest bank by market cap worldwide– behind JPMorgan Chase, Industrial and Commercial Bank of China and Bank ofAmerica HDFC Bank is presently India’s 2nd most valued business by market cap after Reliance Industries

HDFC Bank will likewise have the benefit of access to low-priced present and time deposits, in addition to “a much wider distribution platform and the ability to offer more customized products,” Mistry stated.

HDFC Bank will now have the ability to provide more items to mortgage clients, he stated, discussing that somebody taking a real estate loan will have the ability to get bundled deals from HDFC Bank– such as a cost savings account and a loan to obtain big electrical products like fridges and cleaning makers.

Additionally, Mistry kept in mind that clients with a home loan will keep a much greater bank balance than other account holders, offering HDFC Bank a chance to increase its low-priced cost savings account deposits.

“The merger will be EPS accretive for HDFC Bank,” the non-executive director stated, suggesting it will contribute to the business’s incomes development.

“Over time, the synergies between HDFC Bank and other group companies will only deepen,” he stated including he was positive there were no “insurmountable challenges.”

— CNBC’s Naman Tandon added to this report.