HDFC Bank, the largest bank in India, may declare its first-ever bonus issue in its history of trading on stock exchanges. The announcement could take place on July 19. However, expectations of what its bonus issue ratio is circulating. Among popular bonus ratios are 1:1, 1:2, 1:3, 1:4 and 1:5.
HDFC Bank Bonus Issue Ratio:
As per the regulatory filing, HDFC Bank has announced that on July 19, it would consider the issuance of bonus shares under the applicable provisions, subject to the approval of the Shareholders of the Bank. Apart from this, HDFC Bank will also recommend a special interim dividend.
Bonus shares are one of the many corporate actions that listed companies announce on several occasions. Bonus shares are like incentives that are free of cost given to investors. Under this corporate action, new shares are issued at the existing Face Value of equity shares of the company. Hence, the face value remains the same post-bonus issue.
Bonus Issue Ratio:
Some of the very popular bonus shares ratios that listed companies across markets announce are 1:1, 1:2, 1:3, 1:4 and 1:5, among others. There are also bonus issues in the ratio of 4:1, 3:1, 5:1, 1:10 and much more. Bonus shares ratio varies from company to company and the decision is made by the board of directors of that respective company.
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How do investors benefit from bonus shares?
Bonus issues multiply the number of shares held in the company. The face value remains the same; however, stock is adjusted accordingly.
For instance, a 1:1 bonus issue ratio would mean that eligible shareholders will get 1 free share for every 1 equity share they hold. So, for instance, you had 100 shares in a company and you were eligible for the bonus, then at a ratio of 1:1, you would receive 100 free shares on your existing 100 shares, taking the total number of shares to 200.
If HDFC Bank announces a bonus issue ratio on July 19, then its shares will be adjusted according to the ratio.
Let's check out HDFC Bank's peers and their bonus issue history:
ICICI Bank and SBI are HDFC Bank's nearest competitors. The three banks are called by the RBI as 'Too Big To Fail'.
ICICI Bank Bonus Issue: So far, ICICI has delivered only one bonus issue in the ratio of 1:10. The ex-date for the same was in June 2017.
SBI Bonus Issue: Just like HDFC Bank, SBI has also never carried bonus issue.
Currently, HDFC Bank share price is at Rs 1996.20 apiece, with a market cap of Rs 15,30,668.92 crore. As per Trendlyne data, the consensus recommendation from 41 analysts for HDFC Bank Ltd. is STRONG BUY. EPS is expected to grow by 9.1% in FY26. The average target price is at Rs 2212.68 apiece, indicating a potential 11% upside ahead.
Difference between bonus issue and stock split:
As per Kotak Securities, here are the differences between stock split and bonus issues:
- Stock Split gives rise to reduction in face value, while the face value stays as it is in case of a Bonus Issue.
- Bonus Issue is paid out of the General Reserve of the company, while this is not the case for Stock Split.
- Total paid up capital of the company increases in case of Bonus Issue, while it stays the same for Stock Split.
- Bonus Issue is given as an alternative to Dividend, while Stock Split is announced to increase liquidity and reduce market price to make it more affordable to retail investors.
While HDFC Bank is going to propose its first ever bonus issue in 2025, the lender has a record of splitting its shares not once but twice. The first stock split was of 1:5 ratio in July 2011, followed by 1:2 sub-division in September 2019.
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