Deepak Parekh on many occasions. In one of the conversations, Parekh said, “We aim to be on the top in whichever business we are in.” So when Parekh hung his boots after an illustrious 46 years at HDFC, it was a proud moment for him. The HDFC chairman was stepping down after leading the institution to glory — from insurance to mutual funds to securities to bank and NBFC, whichever segment it is, HDFC is a leader. As Parekh passed the baton in his last board meeting of mortgage lender HDFC on June 30, 2023, the merged entity, HDFC Bank, joined the ranks of the top banks in the world as well. At a $172 billion valuation, HDFC Bank is now the fourth-largest bank in the world in terms of equity market capitalisation, trailing only JPMorgan Chase & Co, Industrial and Commercial Bank of China Ltd, and Bank of America Corp.

Just two years back, Krishnamurthy Subramanian, a former Chief Economic Advisor of India lamented that in the list of top 100 global banks, there was only one Indian bank — State Bank of India — at 55th spot.

“Indian banks are lions locally and lambs globally,” he had said, observing that Indian banks should have aspirations to become large abroad.

Well, it did not take long for that to happen as HDFC Bank has muscled its way into the top 5 banks club with the merger.

HDFC Bank now boasts an expansive customer base of around 120 million individuals, bigger than the population of Germany, and a network of over 8,300 branches and over 177,000 employees.

The merger places HDFC Bank ahead of well-established international players like HSBC Holdings Plc and Citigroup Inc. The bank also leaves its domestic counterparts, State Bank of India and ICICI Bank, trailing behind with market capitalisations of around $62 billion and $79 billion respectively, as of June 22.

The merged entity’s loan book expanded by 13.1% year on year in the first quarter of this fiscal, reaching Rs 22.45 lakh crore, while deposits experienced a growth of 16.2 per cent YoY, amounting to Rs 20.63 lakh crore.

In terms of standalone performance, HDFC Bank’s advances recorded a YoY growth of 15.8%, reaching approximately Rs 16.15 lakh crore as of June 30, 2023. Deposits also experienced a substantial increase of 19.2%, amounting to Rs 19.13 lakh crore during the same period.

What the future holds

So how will the future play out for the newly-minted global financial conglomerate?

The bank with an expected growth rate of 18% to 20%, strong earnings visibility, and a planned expansion to double its branch network in the coming years, is set to leave an indelible footprint in the global banking landscape, according to experts. The merged entity is set to leverage the huge customer base of the mortgage lender it folded in. Notably, approximately 70% of these customers do not currently hold accounts with HDFC Bank, lending it a big catchment of potential customers. Investor confidence in HDFC Bank remains robust, with the institution’s contingent convertible bonds outperforming global peers. Despite the inherent risk associated with such debt instruments, HDFC Bank’s perpetual dollar notes have yielded a return of 3.1% thus far this year. HDFC Bank’s rise in global rankings positions it as a formidable challenger to the dominance of American and Chinese banking giants. The merger’s far-reaching implications extend beyond the Indian financial landscape, reflecting the bank’s ambition to further solidify its presence on the global stage.

The tailwinds

The merger couldn’t have come at an opportune time, India is among the fastest growing economies in the world the stock market is cruising new lifetime highs almost daily. The BSE market capitalisation has reached Rs 300 lakh crore from Rs 100 lakh crore in 2013. Western companies looking to reduce dependency on China has thrown a big opportunity for India Inc. The government has rushed in production-linked incentives and other schemes to boost manufacturing. Consumerism is booming with GST setting the collection bar higher by the month. Green energy poses to be the next big growth lever as pharma and IT were in the earlier decades. This is opening a big field for HDFC Bank and other lenders.

A bigger HDFC Bank will command a stronger presence and credibility, enabling it to raise capital with greater ease both domestically and internationally. This enhanced financial standing will allow it to explore growth opportunities, invest in technological advancements, and pursue strategic initiatives that may have been challenging for individual entities to undertake.

The merger is also expected to enhance the quarterly performance. With improved profit margins, HDFC Bank will be better positioned to deliver robust financial results, attracting increased investor confidence and potentially driving up share prices. This positive trajectory is expected to generate heightened interest from portfolio investors, both domestic and foreign, thereby injecting additional capital into the Indian stock market. Already, the bank has become the third-largest in India after Reliance Industries and TCS. in terms of market capitalisation.

The challenges

However, while the merger has been done, there will be challenges in integrating operations and teams at the two mammoth institutions. For HDFC Bank, a net profit growth of 20% has been a hallmark for a long time, but with the increase in the scale of operations now, the bank has to ensure that the growth tempo is retained, all this at a time when competition has increased in the banking space and digital supremacy is a pre-requisite.

The merger may also leave other banks gasping as the race to secure low-cost and stable deposits would intensify as HDFC Bank would aim to fund the loan book inherited from HDFC through deposits.

Opportunities for India Inc

The merger can also spark consolidation in other sectors, giving Indian industry the heft required to take on the global competition. Close on the heels of HDFC Bank, IDFC First Bank has announced it will fold in parent IDFC. The public sector banks have already been reduced to 12 banks, becoming bigger entities with expanded balance sheets, with the wherewithal to fund the growth ambitions of the industry as it spreads wings globally and taps opportunities locally. The next three-four years will be crucial for HDFC Bank and India. Whether the bank manages to maintain its growth rate will be a key to unlocking its fortunes and the march of the country globally.

https://www.cnbc.com/2023/07/03/indias-hdfc-bank-completes-40-billion-merger-with-mortgage-lender-hdfc.html#:~:text=and%20regulatory%20approvals.-,The%20merged%20entity%20will%20be%20the%20world’s%20fourth%20largest%20bank,of%20Mumbai%2Dbased%20Waterfield%20Advisors.