HDFC Bank-HDFC Merger: What Will Be The Impact On Borrowers And Depositors?

The recent announcement of the merger between HDFC Bank and HDFC has generated significant interest and speculation in the financial industry, reported BQ prime. This merger brings together two major players in the banking and housing finance sectors, raising questions about how it will impact borrowers and depositors.

Customers of HDFC will now be served by HDFC Bank as a result of the merger. There will be a change as a result of the transfer of HDFC's loans and deposits to HDFC Bank, and this change could affect the interest rate on house loans and the interest received on deposits.

"The rate can't be at a detriment to the current; otherwise, the customer has a choice to exit," Srinivasan Vaidyanathan, chief financial officer at HDFC Bank, told analysts in an April 21 conference call, referring to existing interest rates for HDFC's home loan borrowers.

Lending Rates

While HDFC has already implemented an internal benchmark rate called the Retail Prime Lending Rate, HDFC Bank is restricted by banking regulations and cannot adopt the same approach. Consequently, post-merger, HDFC Bank will need to transition its loans to either a margin-based lending rate or an external benchmark lending rate. As part of the merger agreement, HDFC is required to align all its retail, MSME, and other floating-rate loans with an appropriate benchmark rate within six months from the effective date of the merger. Deepak Parekh, the Chairman of HDFC, announced on Tuesday that the anticipated effective date for the HDFC Bank-HDFC merger is July 1.

Assessment of loans

HDFC Bank's CEO, Vaidyanathan, announced during an April 21 call that the bank will conduct a comprehensive loan assessment within six months of the merger. After the assessment, HDFC Bank will present new offers to its customers, giving them the option to switch to the newly introduced market benchmark-linked interest rates.

Interest rates

Following the merger between HDFC and HDFC Bank, there will be changes in the interest rates offered on deposits. Currently, HDFC offers higher interest rates compared to HDFC Bank. However, post-merger, these disparities in interest rates will no longer exist. "All depositors will get the rate of interest which we have committed until the tenor of the deposit," Parekh said on Tuesday.

Safety of deposits

Depositors always consider safety and yield. Although many people believe HDFC Bank to be a safer place to keep their money, many would also accept a slightly lesser yield from the bank.