After a merger, an indigenous Indian company will, for the first time, be among the most valuable banks in the world, posing a new threat to the major American and Chinese lenders currently holding the coveted top slots. As a result of the merger between HDFC Bank and Morgan Stanley, HDFC Bank is now bigger than Morgan Stanley.
According to data gathered by Bloomberg, the combination of HDFC Bank Ltd. and Housing Development Finance Corp. produces a lender that comes in fourth in terms of stock market capitalization, after JPMorgan Chase & Co., Industrial and Commercial Bank of China Ltd., and Bank of America Corp. It is estimated to be worth $182 billion.
With a market value of $182 billion with the merging of the HDFC Twins, HDFC Bank has risen to the fourth-ranking position among banks globally. JPMorgan Chase & Co. has the highest market capitalization, followed by Bank of America and Industrial and Commercial Bank of China. Agricultural Bank of China, China Construction Bank, Wells Fargo, and HSBC are also on the list.
The new HDFC Bank firm will have over 120 million clients after the merger becomes probable effective on July 1; this is more than the population of Germany. Additionally, it will grow its branch network to more than 8,300 locations and boast a workforce of more than 177,000 people.
We highlight the size of this multinational banking behemoth and look at some of the difficulties its stock price will face in the charts below.
Capitalization of the Market
HDFC overtakes banks like HSBC Holdings Plc and Citigroup Inc. ICICI Bank and State Bank of India, two Indian competitors with market capitalizations of $62 billion and $79 billion, respectively, as of June 22, will also be left in the bank’s wake.
“Worldwide, there are very few banks, which can at this scale and size, still aspire to double over a period of four years,” Suresh Ganapathy, head of financial services research for India at Macquarie Group Ltd.’s brokerage unit, said in a Bloomberg TV interview. The bank expects to grow at 18 percent to 20 percent, there is excellent visibility in earnings growth, and he said they plan to double their branches in the next four years. “HDFC Bank will remain a pretty formidable institution.”
Growth Deposit
In terms of deposit growth, HDFC Bank has consistently outpaced its competitors, and the merger presents an additional opportunity to do so by drawing on the mortgage lender’s current clientele. Seventy percent of such clients don’t have bank accounts. Last month, the bank’s retail boss Arvind Kapil stated his intention to persuade people to create a savings account.
According to a presentation made when the merger was announced, only 2% of the clientele had a mortgage product from HDFC Ltd.. Thus the lender can offer in-house home loan products to its customers.
“The lifetime value of a customer’s relationship with that bank just enhances when you start to put a mortgage into his product offering,” Sashi Jagdishan, the bank’s chief executive, said then.
Assurance Test
JPMorgan is one of HDFC Bank’s most prominent investors, with strong investor confidence. It has surpassed its international competitors with contingent convertible bonds, the riskiest financing that can convert to equity if a lender encounters difficulties. Investors have earned 3.1 percent on HDFC Bank’s permanent dollar notes this year, outperforming Bloomberg’s index of global banks’ coco bonds, which has lost 3.5 percent.
The turmoil brought on by a contentious wipeout of the bonds of Credit Suisse Group AG has subsided, and the overall index has recovered some of its recent underperformance.
Performance of Stocks
Shares of HDFC Bank have increased less over the past year than the NIFTY Bank index. According to Macquarie analyst Ganapathy, the loan book’s 18 to 20 percent growth and a 2 percent return on assets will determine how well the stock does.
“Management is confident of sustaining a two percent return on assets and possibly beyond that level even post-merger and also delivering strong loan growth. If they can walk the talk, the stock will re-rate,” Ganapathy said in a note.
