HDFC, India's largest housing finance company, on Monday announced its merger with the country's largest private sector bank.

As part of the merger scheme, shareholders of HDFC as on the record date will receive 42 shares of HDFC Bank for 25 shares held in HDFC, according to an exchange filing. The equity shares held by HDFC in HDFC Bank will be extinguished as per the scheme.

As a result of this merger, HDFC Bank will be 100% owned by public shareholders and existing shareholders of HDFC will own 41% of HDFC Bank. The subsidiaries of HDFC will become associates of HDFC Bank.

The proposed transaction is to create a large balance sheet and net-worth that would allow greater flow of credit into the economy, the filing said. "It will also enable underwriting of larger ticket loans, including infrastructure loans, an urgent need of the country," it added.

The combined entity will bring together complementary strengths of the two organisations. Post the combination, HDFC Bank's customers will be offered mortgages as a core product in a seamless manner, improving the pace of credit growth in the economy, the filing said.

HDFC Bank said it will also leverage the long tenor mortgage relationship to offer varied credit and deposit products, resulting in an enhanced value proposition and customer experience for all customers of the combined entity.

The boards of HDFC and HDFC Bank believe that the merger will create long-term value for all stakeholders, including customers, employees and shareholders of both entities. "The amalgamation of the two entities will provide further impetus to the government’s vision of 'Housing for All'," it said.

"This is a merger of equals. We believe that the housing finance business is poised to grow in leaps and bounds due to the implementation of RERA, infrastructure status to the housing sector, government initiatives like affordable housing for all, amongst others," Deepak Parekh, chairman of HDFC, said. "Over the last few years, various regulations for banks and NBFCs have been harmonised, thereby enabling the potential merger. Further, the resulting larger balance sheet would allow underwriting of large ticket infrastructure loans, accelerate the pace of credit growth in the economy, boost affordable housing and increase the quantum of credit to the priority sector, including credit to the agriculture sector."

The scheme and the proposed transaction is subject to customary closing conditions, The scheme is subject to the receipt of requisite approvals from the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the Competition Commission of India, the National Housing Bank (NHB), the Insurance Regulatory and Development Authority of India, the Pension Fund Regulatory and Development Authority, the National Company Law Tribunal, BSE, the National Stock Exchange of India and other statutory and regulatory authorities.

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