HDFC-HDFC Bank merger talk hots up once again

There is a fresh buzz over a possible HDFC-HDFC Bank merger, following a report by MNC bank Macquarie Research. The report states how the ‘perfect match’ would yield ‘multi-year benefits’. According to a report by Macquarie Research, the upside would come from marrying HDFC Bank’s liabilities base — the best in the country according to Macquaire — with HDFC’s ‘best-in-class’ loan origination franchise. “This would address the concerns over whether HDFC’s wholesale-funded model is scalable, as well as, fill a major gap in HDFC Bank’s asset portfolio. Cross-selling to HDFC’s large customer base would be a secondary opportunity,” the report added. According to Macquarie, HDFC has moved from being a minuscule player in the overall market to being a significant user of national resources. As Figure 6 shows, HDFC’s borrowings now comprise a significant share of incremental deposits in the system. And this will put some pressure on its long-term growth opportunities. We expect that by FY3/13E, HDFC will need bank funding to the extent of 2.8% of incremental bank deposits in the system, which is fairly large for a secondary borrower. Another hurdle for HDFC’s funding is single-borrower limits for banks. Banks cannot lend more than 15% of their total capital to any single borrower.