HDFC: After a merger, an indigenous Indian company will, for the first time, be among the most valuable banks in the world, posing a fresh threat to the major American and Chinese lenders currently holding the coveted top slots. According to data gathered by Bloomberg, the combination of HDFC Bank Ltd. and Housing Development Finance Corp. produces a lender that comes in fourth in terms of stock market capitalization, after JPMorgan Chase & Co., Industrial and Commercial Bank of China Ltd., and Bank of America Corp. It is estimated to be worth $172 billion.
HDFC Bank Set to Surpass 120 Million Clients
The new HDFC Bank firm will have over 120 million clients after the merger becomes probable effective on July 1; this is more than the population of Germany. Additionally, it will grow its branch network to more than 8,300 locations and boast a workforce of more than 177,000 people. We highlight the size of this multinational banking behemoth and look at some of the difficulties its stock price will face in the charts below. Banks like HSBC Holdings Plc and Citigroup Inc. are overtaken by HDFC. ICICI Bank and State Bank of India, two Indian competitors with market capitalizations of $62 billion and $79 billion, respectively, as of June 22, will also be left in the bank’s wake. “Worldwide there are very few banks, which can at this scale and size, still aspire to double over a period of four years,” In an interview with Bloomberg TV, Suresh Ganapathy, the head of financial services research for India at Macquarie Group Ltd.’s brokerage division, remarked. According to him, the bank anticipates growth of 18% to 20%, has excellent earnings growth visibility, and intends to increase the number of branches over the next four years. “HDFC Bank will remain a pretty formidable institution,” he added.
HDFC Bank Surpasses Competitors, Eyes Expansion with Merger
In terms of deposit growth, HDFC Bank has consistently outpaced its competitors, and the merger presents an additional opportunity to do so by drawing on the mortgage lender’s current clientele. About 70% of them clients don’t have bank accounts. Last month, the bank’s retail boss Arvind Kapil stated his intention to persuade people to create a savings account. According to a presentation made when the merger was announced, only 2% of the lender’s clients had a mortgage product from HDFC Ltd., thus the lender will be able to offer in-house home loan products to them. “The lifetime value of a customer’s relationship with that bank just enhances when you start to put a mortgage into his product offering,” Sashi Jagdishan, the bank’s chief executive, said at the time. JPMorgan is one of HDFC Bank’s largest investors, and the bank has strong levels of investor confidence. It has surpassed its international competitors with its contingent convertible bonds, the riskiest sort of financing that can convert to equity if a lender encounters difficulties. Investors have received a return of 3.1% on HDFC Bank’s permanent dollar notes so far this year, despite a 3.5% loss on Bloomberg’s index of global banks’ coco bonds. The turmoil brought on by a contentious wipeout of the bonds of Credit Suisse Group AG has subsided, and the overall index has recovered some of its recent underperformance.
HDFC Bank’s Stock Performance Trails NIFTY Bank Index Amidst Growth Expectations
Shares of HDFC Bank have increased less over the past year than the NIFTY Bank index. The loan book should rise by 18% to 20%, according to Ganapathy, a Macquarie analyst, and there should be a 2% return on assets. “Management is confident of sustaining 2% return on assets and possibly beyond that level even post-merger and also deliver strong loan growth. If they can walk the talk, the stock will re-rate,” Ganapathy said in a note.
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