World score company S&P mentioned Monday the proposed merger of HDFC with HDFC Financial institution will considerably enhance the non-public lender’s market share, making it twice as large as rival ICICI Financial institution. “HDFC Financial institution Ltd.’s deliberate merger with its mum or dad will increase the India-based financial institution’s market share and diversify its revenues,” S&P World Rankings mentioned. “Whereas HDFC Financial institution will stay the second-largest financial institution in India post-merger, it will likely be twice the dimensions of ICICI Financial institution Ltd.” When it comes to market share, State Financial institution of India is the biggest financial institution within the nation with about 25% share, adopted by HDFC Financial institution which at the moment has about 11% market share. The score company, nonetheless, reiterated its score for HDFC Financial institution at BBB- and mentioned the scores stay constrained by the sovereign credit standing on India.
“The merger will doubtless end in important market-share positive factors for HDFC Financial institution, given HDFC Ltd. (the mum or dad) is the biggest financier of mortgages in India. It’ll elevate HDFC Financial institution’s loans by 42% to Rs 18 trillion, growing the financial institution’s market share to about 15%, from 11% at the moment,” the S&P World Rankings mentioned in a press release. “HDFC Financial institution’s bigger stability sheet might improve its wholesale lending alternatives,” it added.
Housing Improvement Finance Company is the biggest mortgage lender within the nation, and after the merger, the mixed entity could have one-third of its portfolio in mortgage loans, in contrast with a reported 11% now, S&P mentioned. “HDFC Ltd.’s mortgage portfolio largely contains particular person housing loans. Such loans are usually granular. Furthermore, HDFC Ltd.’s insurance coverage, asset administration, and securities subsidiaries will additional diversify the mixed entity’s income profile,” S&P added.
Nonetheless, profitability of the non-public lender within the shorter time period could possibly be hit on account of statutory reserve necessities and precedence sector lending laws. However the merged firm will profit from economies of scale, potential to lift funds at aggressive charges, and HDFC Financial institution’s digital capabilities. “In our view, HDFC Financial institution ought to be capable to take in incremental dangers from this portfolio given its sufficient capital and provisioning buffers,” the score company added.
In a separate assertion, Macquarie mentioned although the merger will enhance the financial institution’s product portfolio and skill to cross-sell, there may also be a drag on its P&L on account of greater SLR necessities. Statutory liquidity ratio is the minimal share of deposits {that a} financial institution is meant to keep up within the type of liquid cash underneath RBI norms. “As per our tough calculations, HDFC Financial institution could have an extra SLR/CRR asset requirement of ~Rs700-800bn and also will want an incremental ~Rs900bn agriculture portfolio (primarily based on 18% of borrowings) to fulfill PSL norms. These low-yielding portfolios could possibly be a drag on the merged entity’s P&L,” it added.