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HDFC Bank director says Indian mega merger won’t face ‘insurmountable challenges’
By Jerry
The merger between India’s HDFC Bank and the Housing Development Finance Corporation (HDFC) will increase the entity’s customer base and provide more opportunities for cross-selling, the non-executive director of HDFC Bank told CNBC.
HDFC, India’s largest mortgage lender, merged with HDFC Bank, the country’s biggest private lender, in a $40 billion deal which took effect on July 1.
“A merger between the two entities has always made an immense rationale,” Keki Mistry said, adding that the move will improve the bank’s mortgage portfolio and attract more customers with a range of financial services.
“Customers will now have the opportunity to receive customized products catering to their needs which only banks in India could offer,” Mistry said in an email to CNBC. “From the Bank’s point of view, it offers a massive opportunity to cross sell.”
Mortgage penetration
“One of the critical drivers of this merger is maximizing growth potential. The potential to deepen credit markets and mortgages in particular, in India is immense,” Mistry said.
HDFC Bank has around 83 million customers but only 2% have a housing loan with HDFC. An additional 5% of the bank’s customers have a housing loan from other lenders, he said explaining that it means 93% of HDFC Bank’s customers do not have a home loan.
This presents a “significant opportunity to cross sell and a potential to tap into the customer base that have not taken a housing loan at all,” the director said, adding that HDFC Bank will now be able to offer mortgage services.
Mortgage penetration in India is “extremely low” and only accounts for approximately 11% of its GDP.
That’s much lower than 26% in China, and between 20% to 40% in South East Asia, HDFC said. Most developed markets have more than 50% mortgage penetration, the company added.
“Combining HDFC’s specialization in housing finance and leveraging HDFC Bank’s vast distribution and customer base will, in the long-term, aid in the deeper penetration of mortgage in India,” Mistry said.
