The proposed merger of HDFC with HDFC Bank will give a boost to the private sector lender in terms of revenue and marketshare, said S&P Global Ratings.

“HDFC Bank’s planned merger with its parent will boost the India-based bank’s market share and diversify its revenues,” said S&P Global Ratings.

The agency’s ratings on HDFC Bank at BBB-/Stable/A-3 remain constrained by the sovereign credit rating on India, it further said.

According to the global rating agency, the merger will likely result in significant market-share gains for HDFC Bank, given HDFC is the largest financier of mortgages in India.

It will raise HDFC Bank’s loans by 42 per cent to ₹18-lakh crore, increasing the bank’s market share to about 15 per cent, from 11 per cent at present.

“While HDFC Bank will remain the second-largest bank in India post-merger, it will be twice the size of ICICI Bank, the third-largest bank in the country. HDFC Bank’s larger balance sheet could enhance its wholesale lending opportunities,” said the agency, adding that its expects the combined entity’s capitalisation and asset quality to be broadly in line with those of HDFC Bank on a stand-alone basis.

The combined entity’s earnings could improve over the next three to five years, it further said.

The merger will provide the bank with profitable cross-selling opportunities to HDFC Ltd’s large pool of customers, especially for high-yield products such as unsecured loans. It would also generate more fee income from insurance and investment products.

“The merged bank will benefit from economies of scale and an improved ability to raise funds at competitive rates,” the agency said.

Noting that about 9 per cent of HDFC Ltd’s portfolio comprises loans to real estate developers, where the asset quality is weaker than for the rest of the bank’s portfolio, the agency said that HDFC Bank should be able to absorb incremental risks from this portfolio given its adequate capital and provisioning buffers.

Other analysts and experts have also given a thumbs up to the proposed announcement while noting that the move was kept under wraps and came as a surprise.

According to Binod Modi, Portfolio Manager, PMS, Sharekhan by BNP Paribas, automatic increase in priority sector lending book, 7-8 per cent headroom creation for FPIs investments, and technology advancement augur well for HDFC Bank in the medium-term perspective.

“Additionally, large distribution network of HDFC Bank is expected to aid subsidiaries’ businesses like insurance and AMCs in a better way,” said Modi.

Naveen Kulkarni, Chief Investment Officer, Axis Securities, said the merger will enable value unlocking for HDFC bank to build a solid housing loan portfolio and play the housing cycle by enhancing the existing customer base.

“The merged entity could become the highest weightage single company in the Nifty 50 basket. Further, this merger enables confidence in the Indian economy and looks for a brighter long-term picture beyond the ongoing Russia-Ukraine conflict and the rising inflationary concerns,” he said.

 Mohit Ralhan, Managing Partner, TIW Capital Group said the merger has created a financial behemoth, which is still expected to grow at over 20 per cent rates and may create better profitability with cost synergies.

“This is also good news for customers with consolidation of services under one entity,” he said.