The merger between HDFC Bank and HDFC makes the entity the fourth largest bank on this planet.
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The merger of Indian bank HDFC and Housing Development Financing Corporation (HDFC) will increase the entity’s customer base and supply more cross-selling opportunities, a non-executive director of HDFC Bank told CNBC.
HDFC, India’s largest mortgage lender, has joined HDFC Bank, the country’s largest private lender, in a $40 billion deal that went into effect on July 1.
“A merger between the 2 entities has at all times made great sense,” said Keki Mistry, adding that the move would improve the bank’s mortgage portfolio and attract more customers through a big selection of economic services.
“Customers will now have the power to receive customized products that only banks in India can offer,” Mistry said in an email to CNBC. “From the Bank’s perspective, this offers huge cross-selling opportunities.”
Mortgage Penetration
“Considered one of the important thing drivers of this merger is maximizing growth potential. The potential to deepen credit markets, and specifically mortgages in India, is big,” said Mistry.
HDFC Bank has roughly 83 million customers, but only 2% have an HDFC home loan. An extra 5% of the bank’s customers have a house loan from other lenders, he said, explaining that this meant 93% of HDFC Bank’s customers had no home loan.
This represents “a big cross-selling opportunity and the potential to tap right into a customer base that has not taken a house loan in any respect,” the director said, adding that HDFC Bank will now have the opportunity to supply mortgage services.
Mortgage penetration in India is “extremely low” at only about 11% of its GDP.
That is well below the 26% in China and between 20% and 40% in Southeast Asia, HDFC said. Most developed markets have over 50% mortgage penetration, the corporate added.
“Combining HDFC’s specialization in residential finance and leveraging HDFC Bank’s extensive distribution and customer base will assist in the long run to further penetrate the mortgage market in India,” said Mistry.
Other synergies
Regarding the importance of the merger, Mistry said: “The dimensions of the merger is big when it comes to total assets, total deposits or market capitalization.”
HDFC Bank will even have the advantage of accessing low-cost current and term deposits, in addition to “a wider distribution platform and the power to supply more personalized products,” Mistry said.
HDFC Bank will now have the opportunity to supply more products to home loan customers, he said, explaining that somebody taking a house loan will have the opportunity to receive bundled offers from HDFC Bank – corresponding to a savings account and a loan to purchase large electrical goods corresponding to fridges and washing machines.
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As well as, Mistry noted that mortgage customers will maintain significantly higher bank balances than other account holders, giving HDFC Bank the chance to extend deposits in low-cost savings accounts.
“The merger will increase EPS for HDFC Bank,” said the non-executive director, suggesting it could boost the corporate’s profits.
“Over time, the synergies between HDFC Bank and other group firms will only deepen,” he said, adding that he was confident there have been no “insurmountable challenges”.
— Naman Tandon of CNBC contributed to this report.