HDFC Bank completes $40 billion takeover of India’s largest mortgage lender. Here's what it means

India's largest backstage lender HDFC Bank has completed its merger with Housing Development Finance Corporation, the country's biggest owe lender, successful a woody that pits the caller entity against the world's largest banks.

The merger took effect connected July 1, pursuing shareholder and regulatory approvals.

The merged entity volition beryllium the world's 4th largest slope by marketplace headdress successful the satellite — down JPMorgan Chase, Industrial and Commercial Bank of China and Bank of America, said Soumya Rajan, CEO and laminitis of Mumbai-based Waterfield Advisors.

"This is simply a defining lawsuit successful our travel and I'm assured that our combined spot volition alteration america to make a holistic ecosystem of fiscal services," Sashi Jagdishan, CEO of HDFC Bank said Friday. 

"As we navigate the way ahead, we volition clasp challenges arsenic opportunities, larn from our experiences, and strive to beryllium the benchmark of occurrence and integrity successful the fiscal services industry," helium said successful a press release. 

The merger took spot connected Saturday, astir 15 months aft the woody was archetypal announced.

HDFC Bank announced successful April past year that it volition beryllium acquiring its genitor institution Housing Development Finance Corporation, the largest location financing lender successful India, successful a $40 cardinal all-stock deal.

The merger was carried retired efficiently owed to the "common culture" that some companies have, said Nilesh Shah, managing manager astatine Kotak Mahindra Asset Management. 

HDFC shareholders volition person 42 shares of HDFC Bank for each 25 shares they own, and HDFC volition cease operations connected the Indian banal marketplace connected 13 July. 

The caller entity present holds a marketplace headdress of astir $172 billion, Rajan said, adding it volition go India's 2nd astir valued institution by marketplace headdress aft Reliance Industries. 

"These 2 powerhouses coming unneurotic should marque a worldly interaction successful maturation and expanding the lawsuit basal successful the days to come," Shah told CNBC.

"So for them, 1 positive 1 should go 11 and not 2 oregon three. They request to leverage these synergies to make adjacent a amended enactment than what has already been created," helium said. 

In a presentation to HDFC investors, the owe lender outlined synergies including entree to little backing costs, operational efficiencies and a wider organisation web for HDFC.

There volition besides beryllium cross-selling opportunities arsenic 70% of HDFC's customers bash not person a banking relationship with HDFC Bank, according to the presentation. In addition, retired of HDFC Bank's 71 cardinal lawsuit base, "only 5% person a owe from different owe providers and lone 2% person a owe from HDFC."

Before the 2 entities merged, HDFC was the "organization that gave astir radical mortgages and lodging loans successful India, which they could ne'er aspire to person successful the past," said Rajan from Waterfield Advisors. 

The merger was "inevitable," and it present gives customers entree to a suite of services and a bigger organisation network, she added. 

Both analysts agreed that much specified mergers could beryllium seen coming retired of India. 

"In this instance, you had the lawsuit of a owe lender, and you had a lawsuit of a axenic bank, and being capable to find the synergies there. Likewise, if determination are different standalone entities that specialize successful circumstantial services — which could beryllium complementary to a larger slope – I deliberation those volition commencement playing retired arsenic good [in a merger]," she added.

Shah said that HDFC Bank is not portion of the MSCI Emerging Market Index, but whitethorn present beryllium included.

The merger gives the caller entity a "fast increasing opportunity" for planetary investors looking to bargain into India's banking sector, Shah highlighted. 

"It was ever a non-index bet, but contempt that investors felt comfy owning it. Being portion of the scale is present going to truly positively bring galore much caller investors into HDFC Bank," Shah said.

Shares of HDFC Bank are up 4.5% year-to-date, portion shares of HDFC person risen 7% successful the aforesaid period, according to FactSet data.