In a recent interview with CNBC, Keki Mistry, the non-executive director of HDFC Bank, expressed confidence that the merger between HDFC Bank and the Housing Development Finance Corporation (HDFC) would bring numerous advantages and unlock significant growth potential. This $40 billion deal, which came into effect on July 1, is poised to enhance the customer base of the combined entity and create opportunities for cross-selling.

Mistry emphasized the logical rationale behind the merger, highlighting its potential to strengthen HDFC Bank’s mortgage portfolio and attract a broader range of customers seeking diverse financial services. With this merger, customers will now have access to tailored products catering to their specific needs, providing a unique advantage that only Indian banks can offer. Mistry further emphasized the massive opportunity for cross-selling that this merger presents for the bank.

One of the primary drivers behind the merger is the maximization of growth potential, particularly in credit markets and mortgages in India. Mistry noted that while HDFC Bank currently serves around 83 million customers, only a small fraction (2%) have a housing loan with HDFC, and an additional 5% have housing loans from other lenders. This indicates a vast untapped market of 93% of HDFC Bank’s customer base who do not currently have a home loan. By offering mortgage services, HDFC Bank can tap into this significant customer segment.

Mortgage penetration in India is strikingly low, accounting for only approximately 11% of the country’s GDP. In comparison, China’s mortgage penetration stands at 26%, while several Southeast Asian countries have rates between 20% and 40%. In developed markets, mortgage penetration exceeds 50%. Recognizing this untapped potential, Mistry emphasized that the merger of HDFC’s expertise in housing finance with HDFC Bank’s extensive distribution network and customer base would facilitate deeper mortgage penetration in India.

Beyond mortgage expansion, Mistry underscored other synergies arising from the merger. The sheer scale of the merger is noteworthy, with the combined entity now ranking as the fourth-largest bank in the world by market capitalization, trailing only JPMorgan Chase, Industrial and Commercial Bank of China, and Bank of America. Following Reliance Industries, HDFC Bank currently holds the position of India’s second most valued company by market capitalization.

Moreover, HDFC Bank stands to gain access to low-cost current and time deposits, broaden its distribution platform, and offer a more extensive range of customized products. For instance, customers taking a housing loan will be eligible for bundled offers, including a savings account and loans for major appliances like refrigerators and washing machines. Mistry also highlighted the opportunity to increase low-cost savings account deposits, as customers with mortgage loans typically maintain higher bank balances.

Mistry concluded by stating his confidence in the merger’s success, expressing optimism regarding the deepening synergies between HDFC Bank and other group companies. He firmly believes that no insurmountable challenges lie ahead and expects the merger to be EPS accretive, contributing to the company’s earnings growth over time.

In summary, the merger between HDFC Bank and HDFC holds the promise of significant growth opportunities and expanded market reach. By leveraging each other’s strengths, the combined entity aims to enhance its mortgage services, penetrate untapped customer segments, and provide a broader range of tailored financial products. With the merger now in effect, HDFC Bank is poised to solidify its position as a leading player in the Indian banking sector and harness its potential for future success.