What happened
HDFC Bank (HDB 2.91%) stock rocketed higher on Monday, surging 8.4% as of 10:40 a.m. ET after hitting a high of 11.8% within a minute of the market's opening. The Indian banking behemoth is making a huge growth move that could be a game changer in a competitive domestic market. HDFC Bank shares rallied on India's National Stock Exchange in the morning and closed trading Monday up 9.8%.
So what
On the morning of April 4, HDFC Bank proposed an amalgamation with parent company HDFC, which is also listed in India. Here's why it's such a big deal: HDFC Bank is India's largest private bank in terms of assets and sales and is HDFC India's largest mortgage lender with outstanding loans worth nearly $83 billion as of Dec. 31, 2021.
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HDFC Bank itself has a huge retail loan arm and specializes in loans to low- and middle-income groups, with a focus on rural and semi-urban areas. It also sources home loans for HDFC in return for a fee, with an option to purchase 70% of fully disbursed loans under the agreement.
After the merger, HDFC will become a subsidiary of HDFC Bank, thereby creating a financial giant that'll become India's leading banking and housing finance company. It's an all-stock deal valued at nearly $60 billion. Also, since HDFC is currently the bank's promoter, HDFC Bank will be owned 100% by public shareholders after the merger.
Now what
As HDFC Bank already sources home loans for its parent, the merger will complement the bank's strengths and enable it to offer mortgages seamlessly to its customer base of more than 68 million. HDFC Bank CEO Sashi Jagdishan expects the proposed merger to be value accretive to all stakeholders.
India's huge population, swelling middle class, and rising per capita income offers massive growth potential for the home loan market, which is why HDFC Bank is right to call this a transformational merger.
