In a historic merger for Indian financial sector, HDFC Bank Ltd. and Housing Development Finance Corp., are reportedly set to propel the homegrown company into the ranks of the worlds most valuable banks.
The new entity, valued at around $172 billion, will claim the fourth spot in equity market capitalization, competing with major American and Chinese lenders like JPMorgan Chase & Co., Industrial and Commercial Bank of China Ltd., and Bank of America Corp.
Expected to be effective from July 1, the merged HDFC Bank will cater to an impressive customer base of approximately 120 million, surpassing the population of Germany. Additionally, it will expand its branch network to over 8,300 locations and boast a workforce of more than 177,000 employees.
Moreover, the market capitalization of HDFC Bank will surge ahead of banks like HSBC Holdings Plc and Citigroup Inc., as well as its Indian counterparts State Bank of India and ICICI Bank.
Financial experts believe that few banks in the world can aspire to double their size and scale over four years, making HDFC Bank a formidable institution with solid earnings growth prospects.
As per the reliable estimates, HDFC Bank's consistent outperformance in garnering deposits will receive a boost through this merger, with an opportunity to expand its deposit base by tapping into the existing customers of the mortgage lender. Plans to offer in-house home loan products to clients will further enhance the bank's potential for growth.
Investors have shown strong confidence in HDFC Bank, particularly considering the successful performance of its contingent convertible bonds, even outperforming global peers in the perpetual dollar notes category.
While HDFC Bank shares have slightly underperformed the NIFTY Bank index in the past year, the analysts believe that the stock's future performance will be influenced by the bank's ability to maintain a growth rate of 18% to 20% in its loan book and achieve a 2% return on assets. If the bank can deliver on these promises, the stock is expected to gain further traction and attract higher valuation.