Indian bank HDFC Bank Ltd will keep home loans at the center of its growth strategy after the completion of the merger with HDFC Ltd, as this type of lending is likely to represent almost a third of the bank’s portfolio in the future, two senior officials of the group said.
The pace of home loan growth will largely mirror the growth of HDFC’s home loan portfolio, said the first official, who declined to be identified because strategy discussions are not public.
Individual home loans have grown at a compound annual rate of 16% over the past five years, according to their presentation to investors.
The mortgage segment is seen as a steadily growing business with few repayments and has seen renewed activity since the pandemic.
Although the share of wallet fluctuates depending on the growth of other segments, the group is happy to see it remain at its current level, the official said.
“We see home loans as an off-the-shelf product that can drive off-the-hook deposits and drive lending across a number of home-related personal loan categories,” the official added.
The merger, which was announced in April last year and is expected to be completed in early July, will see India’s largest real estate financier merge with the bank it acquired in 1994 – now the country’s largest private lender.
After completion of the deal, HDFC’s portfolio worth 7.2 trillion rupees (US$87.32 billion) will be transferred to the bank and will represent approximately 30% of its entire portfolio of loans. This portfolio includes individual housing loans worth Rs 6.02 trillion.
The home loan business will not function as a separate vertical business, but HDFC’s frontline employees will continue to lead the growth of this product while expanding the proposition for other retail lending, the second official said.
The first official added that home loan credit decisions will be integrated into the bank’s wider credit department.
RUSSIAN ACQUISITIONS
As part of the merger, HDFC’s subsidiaries are transferred to the bank.
HDFC Bank, whose second largest segment is banking, will increase its share in life insurance from 48.7% to over 50% and from 49.9% to over 50% in the non-life insurance segment.
Both transactions will be completed before the merger and could take place in the open market or under bilateral agreements, the officials said.
The Reserve Bank of India has also asked HDFC to sell a majority stake in its education lending arm Credila Financial Services, valued at nearly $1.2-1.5 billion. due to overlap with the bank’s activities.
That transaction won’t close until after the merger, but talks are at an advanced stage, the second person said.
HDB Financial, the non-bank lending arm of HDFC Bank, will remain a separate entity and move towards an IPO by 2025, the first official said.
After the merger, foreign ownership in the combined entity is expected to be between 60% and 62%, the first official said.
This could allow the bank to be added to the MSCI index for the first time since 2013, potentially bringing foreign entries into the bank.
($1 = 82.4510 Indian Rupees)
