The merger between HDFC Bank and HDFC now makes the entity the fourth largest bank in the world.

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Merger of HDFC Bank of India with Bank of India Housing Development Finance Corporation HDFC Bank will expand the entity’s customer base and provide more cross-selling opportunities, a non-executive director of HDFC Bank told CNBC.

HDFC, India’s largest mortgage lender, merged with HDFC Bank, India’s largest private lender, in a $40 billion deal that came into effect on July 1.

“There has always been a huge rationale for a merger between the two entities,” said Keki Mistry, adding that the move would improve the bank’s mortgage portfolio and attract more customers through a range of financial services.

“Clients will now have access to customized products for their needs that only banks in India can offer,” Mistry said in an email to CNBC. “From a bank’s perspective, it offers tremendous Cross-selling opportunities.”

Mortgage Penetration

“One of the key drivers of this merger is to maximize the growth potential. The potential to deepen the credit market, especially the Indian mortgage market, is enormous,” Mistry said.

HDFC Bank has about 83 million customers, but only 2% of customers have HDFC home loans. He said 5 per cent of the bank’s customers also had home loans from other lenders, meaning 93 per cent of HDFC Bank’s customers did not have a home loan.

This offers “significant opportunities for cross-selling and the potential to reach a customer base that has not applied for a home loan at all”, the executive said, adding that HDFC Bank will now be able to service mortgage loans.

India’s mortgage penetration rate is “extremely low”, accounting for only about 11% of its GDP.

HDFC said this was much lower than the 26 percent in China and the 20 to 40 percent in Southeast Asia. Mortgage penetration is above 50% in most developed markets, the firm added.

“Combining HDFC’s expertise in housing finance with HDFC Bank’s large distribution and customer base will facilitate deeper penetration of mortgage lending in India in the long run,” Mistry said.

other synergies

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Furthermore, Mistry noted that customers with mortgages will maintain higher bank balances than other account holders, giving HDFC Bank an opportunity to increase its low-cost savings account deposits.

“The merger will be accretive to HDFC Bank’s earnings per share,” the non-executive director said, implying that it will boost the company’s earnings growth.

“Over time, the synergies between HDFC Bank and other group companies will only deepen,” he said, adding that he believed there were no “insurmountable challenges”.

— CNBC’s Naman Tandon contributed to this report.


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