HDFC-HDFC Bank Merger To Be Completed Within 4-5 Weeks, Anticipate Decline In Bank's Margin

The merger of HDFC and HDFC Bank Ltd (HDBK.NS), (HDFC.NS), is only 4-5 weeks away and will result in a reduced net interest margin (NIM) for the lender this year, brokerages predicted on Thursday, a day after management met with analysts.

According to Nomura analysts, the bank anticipates NIM, a key profitability metric, to decline to 3.7%-3.8% in 2023-24 from 4.1% a year ago as a result of the merger.

Lower loan costs and operating leverage, however, will more than balance the impact, according to Nomura, quoting management, which was represented by HDFC Bank CEO Sashidhar Jagdishan.
The Reserve Bank of India granted HDFC Bank limited regulatory relief in April to smooth out the merger.

HDFC Bank's management told analysts that the bank aims to maintain a post-merger return on assets of 1.9% to 2.1% for 2023-24, compared to 2.1% in the previous fiscal year, according to a Macquarie report,

Deposit mobilisation will remain a primary emphasis for the bank following the merger.
According to analyst sources, at the meeting, management restated its plans to add around 1,500 branches every year for the next 4-5 years. The vast majority will be in rural and semi-urban areas.

The bank is confident in expanding deposits at 1.5-2x industry growth in the future, while credit growth is expected to be similar to the 5-year average of 19.5%, according to management.

According to a Jefferies report, HDFC Bank anticipates corporate banking to compound at a consistent rate.

This space represents a chance to leverage business partnerships for deposits, transaction banking, and other services, according to the bank.