Nifty Bank saw a flurry of activity as news of the merger between HDFC and HDFC Bank hit headlines on Monday. Both HDFC and HDFC Bank saw an upmove of around 10 percent yesterday even after the profit-taking.
As the market rethinks the benefits of the merger, CNBC-TV18’s Latha Venkatesh spoke to Suresh Ganapathy, Banking Analyst, Macquarie Capital Securities, to understand his views on it.
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First up, Ganapathy pointed out that the Reserve Bank of India and the government are on the same page when it comes to the mortgage sector. He highlighted that the mortgage sector was doing well even despite the decline in credit growth. He mentioned that mortgage was the one thing that was not in HDFC Bank’s portfolio and it was merely acting as a sourcing agent. However, post-merger, the bank can do mortgages on a wider basis.
He said, “The segment in the economy which was always doing very well was mortgage. Even when we saw credit growth going down to a lower level like 5-6 percent, mortgages were still growing in double-digits. So that’s one segment where both the government as well as the RBI are on the same page and you can see quite a secular growth that is happening and that was one thing that was not there in HDFC Bank’s portfolio. So now the benefits will come to HDFC Bank over the long-term through mortgage.”
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Ganapathy believes the size of the merged entity will be a constraint. He reckons that there might be a few challenges for HDFC Bank. 18 percent agriculture and 10 percent vehicle norm may be tough for the bank, he mentioned. Also, it will have to abide by the law with respect to having a stake in insurance companies. Ganapathy also pointed out that HDFC Ltd has a lower return on assets (RoA) than HDFC Bank.
