ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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The Merger of HDFC Limited with HDFC Bank

Synergy or Concentration?

The merger of HDFC Limited with its associate, HDFC Bank, has further increased the size of the latter and benefited it from various organisational synergies. At the same time, the nature of the bank, being retail- and transaction-oriented, may have also changed as it moves towards higher exposures in wholesale and corporate banking. There may be, therefore, consequent impacts from the rise in industry concentration as well as systematic risk for the bank, and hence a need for enhanced corporate governance and regulatory oversight.

Views are personal.

On 1 July 2023, HDFC Limited merged with its associate, HDFC Bank, creating the second largest bank in terms of asset size in India. Set up in 1977 for the purpose of housing mortgage finance, the company established the bank with a universal banking licence in 1994. With their founding years set apart by almost two decades, both organisations pioneered best practices and innovations in housing finance and banking, raising their sectors size, efficiency and performance. The merger has led to the transformation of HDFC Bank into a financial services conglomerate with subsidiaries in non-banking activities such as life and general insurance, asset management, etc.

This commentary probes into the benefits and impacts of the merger of HDFC Limited with HDFC Bank. It took place as several disrupting events unfolded in the respective sectors of both entities. While the economic reason for their consolidation, to create a bigger and better bank, may be sound, their merger may have other consequential impacts. The post-merger size and structure of HDFC Bank group may have bigger and long-term ramifications, and hence must be ensured to be more robust and resilient.

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Published On : 20th Jan, 2024

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