The merger of HDFC, the country’s largest private bank, and HDFC Ltd., the finance company, is set to take effect from July 1st. This consolidation will bring about significant changes for account holders and loan recipients of HDFC Bank. Here are the major implications of the merger:
Increased Loan Capacity: The merger enables HDFC Bank to provide a broader range of loans. Customers will have access to loan services and banking facilities within a single branch. Home loans will be available from all branches of the bank. With increased capital strength, HDFC Bank will have the ability to offer loans to a larger customer base, including riskier loans.
Potential Benefits for FD Holders: Customers with fixed deposits (FDs) in HDFC Bank may witness changes in interest rates. Currently, there exists a discrepancy in interest rates between HDFC and HDFC Bank. HDFC offers interest rates ranging from 6.56% to 7.21%, while HDFC Bank offers 3% to 7.25% on FDs with varying tenures. As a result of the merger, customers who choose to renew their FDs may experience adjustments in interest rates.
Insurance Coverage for HDFC Customers: After the merger, HDFC customers will also be eligible for insurance coverage on their deposits. According to RBI regulations, the Deposit Insurance and Credit Guarantee Corporation provides insurance coverage of up to Rs 5 lakh to depositors.
Implications for Home Loan Customers: The merger will impact home loan customers of HDFC Finance. As per RBI guidelines implemented in 2019, all loans are now linked to the External Benchmark Lending Rate (EBLR). Consequently, after the merger, HDFC loan interest rates will be determined based on the external benchmark lending rate for the next six months. This adjustment will allow customers to benefit from potential reductions in the RBI’s repo rate. The use of EBLR also enhances transparency in interest rate calculations.
Effects on Shareholders: Following the merger, trading of HDFC Housing Finance in the stock market will cease on July 13th. Shareholders of HDFC Ltd. will receive 42 shares of HDFC Bank for every 25 shares held, resulting in a beneficial outcome for shareholders due to the merger.