After this merger, HDFC soars into the list of the most valuable banks in the world

After a merger, an indigenous Indian firm will, for the first time, be among the most valuable banks in the world, posing a fresh threat to the major American and Chinese lenders now holding the coveted top slots.

According to statistics 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 $172 billion.

The new HDFC Bank firm will have over 120 million clients when 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 emphasise 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
Banks like HSBC Holdings Plc and Citigroup Inc. are overtaken by HDFC. 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.

According to Suresh Ganapathy, head of financial services research for India at Macquarie Group Ltd.’s brokerage division, “there are very few banks in the world, at this scale and size, still aspire to double over a period of four years.” According to him, the bank anticipates growth of 18% to 20%, has excellent profits growth visibility, and intends to increase the number of branches over the next four years. The HDFC Bank will continue to be a very strong organisation.

Deposit Increase
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. About 70% of them 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, just 2% of the lender’s customers had a mortgage product from HDFC Ltd., thus the lender would be able to provide in-house home loan products to them.

When you start to include a mortgage in a bank’s product offering, the lifetime value of a customer’s connection with that bank only increases, according to Sashi Jagdishan, the bank’s top executive, at the time.

Assurance Test
JPMorgan is one of HDFC Bank’s major investors, and the bank has strong levels of investor trust. It has surpassed its international competitors with its contingent convertible bonds, the riskiest sort of financing that may convert to equity if a lender has difficulties. Investors have received a return of 3.1% on HDFC Bank’s permanent dollar notes so far this year, despite a 3.5% loss on Bloomberg’s index of global banks’ coco bonds.

The upheaval 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 last year than the NIFTY Bank index. The loan book should rise by 18% to 20%, according to Ganapathy, a Macquarie analyst, and there should be a 2% return on assets.

“Management is confident in continuing to generate a 2% return on assets, and maybe even higher, even after the merger, as well as robust loan growth. The stock will re-rate if they can really do what they say,” Ganapathy said in a note.