The proposed amalgamation of HDFC with HDFC Bank is very accretive from the perspective of shareholders of both financial entities, according to HDFC Vice-Chairman and CEO Keki Mistry.
The amalgamation is expected to be completed in 15-18 months, said Sashidhar Jagdishan, MD & CEO, HDFC Bank.
Mistry emphasised: “We will now be able to leverage the lower cost of funds of the bank together with its huge distribution platform and reach with the efficiency in the mortgage product which HDFC has developed over the last 40 plus years and also the fact that our cost to income ratio currently stands at 8.1 per cent.
“So, I think, in terms of combination, to my mind, this is probably one of the best combinations we could have had.”
He observed that earlier the merger did not make as accretive a sense as it does today because of higher cash reserve ratio (CRR), statutory liquidity ratio (SLR) requirements and for priority sector lending the combined entity actually would have had to go out and borrow money.
Mistry underscored that the merger will be EPS (earnings per share) accretive from year one as 21 per cent of the shares of HDFC in HDFC Bank will get cancelled.
“HDFC’s Tier-I capital currently stands at over 22 per cent. This is calculated after reducing the investment made by HDFC in the bank. So, when that gets cancelled, capital will go up and therefore, overall from capital adequacy perspective, it (the merger) will be positive,” he said.
Jagdishan said the amalgamation will be a ‘lift and shift’ in terms of dovetailing HDFC with the bank.