HDFC-HDFC Bank merger in 4-5 weeks; bank’s margin to drop, say analysts


MUMBAI: The merger of HDFC and HDFC Bank Ltd is just four to five weeks away and would result in a lower net interest margin (NIM) for the lender this year, brokerage firms said on Thursday, a day after management met analysts.
The bank expects the NIM — a key profitability metric — to fall to between 3.7% and 3.8% over the 2023-24 period from 4.1% last year as a result of the merger, Nomura analysts wrote in a report.
However, lower borrowing costs and reduced operating leverage will largely offset the impact, Nomura said, citing management who was represented Sashidhar Jagdishan, CEO of HDFC Bank.
The Reserve Bank of India granted selective regulatory relief to HDFC Bank in April to smooth out the merger.
HDFC Bank management told analysts that the bank expects a post-merger return on assets of 1.9% to 2.1% for 2023-24, compared to 2.1% last fiscal year, according to a note from Macquarie emerges.
Post-merger, deposit mobilization will continue to be a key focus of the bank.
At the meeting, management reiterated plans to open over 1,500 stores each year for the next four to five years, according to analyst reports. A significant portion of this will be in rural and semi-urban areas.
The bank remains confident of being able to grow its deposits at 1.5 to 2 times industry growth going forward, while loan growth is near the 5-year average of 19.5%, management told analysts with.
According to a Jefferies report, HDFC Bank anticipates a steady increase in corporate banking, management said.
The bank sees this area as an opportunity to use corporate relationships for deposits and transaction banking, among other things, it said.

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