BC HDFC TWINS
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HDFC Bank has announced a merger with HDFC Ltd

What does it mean for the banking system and the shareholders of both companies?

A thread🧵explaining the pros and cons of the merger.

Hit "Retweet" to educate maximum investors

Lets go👇

(1/19)

 What is happening?

HDFC Bank will take over HDFC Ltd....effectively making a huge bank

25 shares of HDFC ltd will receive 42 shares of HDFC Bank.

(2/19)
Potential to be India's largest Bank?

HDFC Bank+HDFC total size=18 lakh crores
SBI total size=26.5 lakh crores

With steady loan growth over the next 5 years....surely HDFC Bank will become the largest bank

(3/19)
Housing Finance is a big opportunity and the missing puzzle in the HDFC Bank armor:-

Over the past year ICICI scored big time on HDFC Bank due to rapid growth on home loans.
ICICI clocked up about 24% loan growth while HDFC Bank did not have a home loan portfolio.

(4/19)
So why merge now?

The regulatory arbitrage b/w Banks and NBFCs is slipping away:-

The IL&FS crisis hit the economy really hard.

Since then the RBI has taken various steps in NBFCs:-
1. Asset classification norms for NBFCs have been moved at par with that of banks.

(5/19)
2. Increased supervision of large NBFCs
3. It is further expected that RBI may move to a CRR and SLR type regime for NBFCs as well.

(6/19)
We are at the bottom of a credit cycle:-

Both HDFC and HDFC Bank are flushed with capital.

HDFC Banks has a TIER-1 CAR of 19.6%
HDFC Ltd has a TIER-1 CAR of 22.4%

Capital requirement is low at this stage...Therefore it makes sense to take on this merger

(7/19)
We are at the bottom of the real estate cycle:-

Over the last 3 years we have seen

1. IL&FS crisis
2. DHFL crisis
3. Drying up of builder funding

has led to NBFC crisis.

(8/19)
Some factors leading to a revival in demand

1. Low-Interest rates
2. End of builder consolidation that started since the IL&FS crisis
3. Sops given by various governments like stamp duty cuts

In fact HDFC ltd reported a 48% growth in the first 9 months of this year.

(9/19)
Cross-sell opportunities are immense

1. 70% of HDFC Bank customers do not have a home loan
2. 68% of HDFC ltd customer do not have a liability franchise with HDFC Bank

When all the products are offered under one basket...the value will be immense.

(10/19)
Cost of Funds on HDFC Ltd book comes down:-

Currently, HDFC ltd raises funds at 5.8%
HDFC Bank raises funds at about 3.5-4%.

There will be massive savings on cost of funds as the merger properly takes shape

(11/19)
The merger will be value accretive from Day-1:-

HDFC Ltd's current shareholding in HDFC Bank will automatically get canceled.

This means the whole pie of shareholding will contract which will result in

1. Increase in EPS
2.Increase in Book Value
3.Increase in CAR

(12/19)
Succession Planning at HDFC Ltd

Mr Keki Mistry was turning 67 and was due to retire by 70.
Renu Karnad is also 67 and due to retire.

Therefore it makes complete sense to merge HDFC ltd so that the succession planning is taken care of

(13/19)
Key Challenges in this merger:-

HDFC ltd has about 5.25 lakh crores book.

On this book, CRR+SLR and statutory buffers have not been maintained.

This will require huge capital.

Since this a big amount the bank has written to the RBI to allow 2-3 years for this change

(14/19)
The sheer size of the company will also mean challenges:-

The loan book of both entities will now be 18 lakh crores.

The sheer challenge to maintain asset quality and growth on such a scale is massive.

(15/19)
Holdings in subsidiaries

HDFC Bank post-merger will hold a stake in

1. HDFC Life
2. HDFC AMC
3. Bandhan Bank
4.RBL Bank
5. HDFC Ergo
6.HDB Financial
7. HDFC Credila

The regulator must allow the bank to keep a stake in all these companies

(16/19)
Regulatory approval will be a long process:-

So many regulators are involved in the process that chances of hitting a roadblock are high

(17/19)
So what should shareholders of HDFC ltd do?

Maintain shares in multiple of 25.Any odd shareholding will mean ur shares will be converted to cash.

(18/19)
So what is our view on the merger?

This is a monumental moment in Banking.

HDFC Bank will become a behemoth now.

There are many challenges ahead for the Bank....equally scale will mean there is a big opportunity too

But the opportunities outweigh the challenges!
😁
(19/19)

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A thread🧵explaining why index funds should be a part of ur equity MF portfolio!

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Passive vs Active Mutual Fund Strategy

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When the upcycle in a sector is very strong
Poorly managed companies also make returns

2021 steel cycle-
SAIL went up from 30 to 120

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PSU Banks are making money!

But does this mean credit culture has changed for PSU Banks?
No evidence of that
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So many terminologies in Banking!

Confused?😥🤔

Dont worry.

A thread🧵 on basics of Banking

Hit "Retweet" to educate Maximum Investors

Lets go👇

(1/20)

Types of banks:-

Your money should be parked in scheduled commercial Banks

Scheduled Commercial Banks
-PSU Banks
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Do not park money is Co-operative/Regional Banks

List is shown below

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NPA, NPA, NPA! Kya hain yeh NPA?🤔

Gross NPA (GNPA)-

It is the total loans on which no payment has been paid for 90 days or more.
GNPA % is usually shown in each Bank’s quarterly results. The percentage is basically the GNPA amount as a % of the total advances.

(3/20)

Net NPA (NNPA)-

The total figure left after deducting provisions made for bad loans from GNPA.
(GNPA – Provisions+upgrades/writeoffs = NNPA)

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Special Mention Account (SMA) –

SMA-0

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UPI & now
Open Network for Digital Commerce(ONDC)

As ONDC starts testing in Bengaluru!
ONDC is yet another UPI moment(game changer) in e-commerce

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How Big is India's e-commerce market?

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Kirana Stores are physical in Nature:-

In India, around 1.2 crore Kirana stores, which are hyperlocal neighborhood provision stores, account for 80% of the retail sector, but most of these stores are digitally excluded.

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India had 4.25 crore Micro, Small and Medium Enterprises (MSMEs) that could benefit from the digital revolution, the paper adds.

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