Following the completion of a merger, a native Indian corporation will for the first time rank among the world's most valuable banks, establishing a new competitor to the major American and Chinese lenders now occupying the coveted top slots.
According to Bloomberg data, the merger of HDFC Bank Ltd. and Housing Development Finance Corp. establishes a lender with the fourth largest stock market capitalization, trailing JPMorgan Chase & Co., Industrial and Commercial Bank of China Ltd., and Bank of America Corp. It is worth roughly $172 billion.
After the said merger of HDFC Ltd. and HDFC Bank, the bank is said to gain about 120 million customer base, which is larger than the whole population of Germany. It will also increase its branch network to about 8,300 sites and employ more than 177,000 workers.
Below are some of the factors that are causing the bank to be listed among the top banks of the world:
Market Capitalization
According to Bloomberg data as on 22 June, with market capitalizations of about $62 billion and $79 billion, HDFC has surged ahead of banks like HSBC Holdings Plc and Citigroup Inc. And has even left behind its Indian Peers like the ICICI Bank and SBI.
Further, in an interview with Bloomberg TV Suresh Ganapathy, India's head of financial services research at Macquarie Group Ltd.'s brokerage business stated that the bank intends to expand at an 18% to 20% annual rate, with extremely high-profit growth visibility over the next four years.
Deposit Growth
HDFC Bank has historically outpaced its counterparts in terms of deposit growth, and the merger provides another opportunity to expand its deposit base by tapping into the mortgage lender's current clients. Approximately 70% of the clients do not have bank accounts. Arvind Kapil, the bank's retail chief, stated last month that he intends to convince them to create a savings account.
According to a presentation given when the merger was announced, the lender would be able to offer in-house home loan solutions to its consumers because just 2% of them had a mortgage product from HDFC Ltd.
Confidence Check
Investor trust is high at HDFC Bank, which counts JPMorgan among its major investors. Its contingent convertible bonds outpaced its worldwide rivals since they are the riskiest sort of debt that can convert to stock if a lender runs into difficulties. HDFC Bank's permanent dollar notes have returned 3.1% so far this year, while Bloomberg's index of global banks' coco bonds has lost 3.5%.
Stock Performance
Over the last year, HDFC Bank shares have gained less than the NIFTY Bank index. According to Ganapathy, a Macquarie analyst, the stock's success will be determined by loan book growth of 18% to 20% and a 2% return on assets.
Ganapathy even noted that stock might get re-rated. Even the management is confident of sustaining a 2% return on assets and even beyond after the merger with robust loan growth.
(This news is in consideration with the interview and data revealed by Bloomberg)