Will the dynamics of the Indian Bond Market will change Post HDFC Merger?

2 min read

With the decision of the Housing Development Finance Corporation (HDFC) to merge into HDFC Bank, there is a great development in the Non-Banking Finance Companies (NBFC) or Housing Finance sector. Let’s discuss the impact of the merger decision on the NBFC sector in this article as we move ahead.

The merger of HDFC with HDFC Bank:

  • On Monday 4th April 2022, HDFC announced the decision to merge with India’s largest private sector bank HDFC Bank.
  • With this decision of HDFC to merge with HDFC Bank, a big player from the NBFC or Housing sector gets aside. Here it has turned out to be a big positive for the NBFC or Housing Finance players for raising money.
  • The cost of Deposits is quite lower for HDFC Bank and now HDFC also has Mortgage Loan to lend.
  • In the Bond Market of India, which values at around Rs. 5.5 Lakh Cr., the HDFC accounts for 9% of the Bonds, hence it is a big player. Now, when the maturity of these bonds ends, the other big players in the sector will be benefited.

Stocks to be Benefited from HDFC-HDFC Bank Merger:

1) Bajaj Finance

2) LIC Housing Finance

3) L&T Finance

Challenges for To-Be Benefited Players:

  • Rules laid down by the Reserve Bank of India on NBFC have been becoming more strict with time. Like Liquidity Coverage Ratio should be 100%, such strict rules were not there earlier. The liquidity Coverage Ratio refers to the proportion of highly liquid assets held by financial institutions, to ensure their ongoing ability to meet short-term obligations (i.e., 90 days).
  • Further, RBI has also said regarding the Non-Performing Assets (NPA) that if there is no repayment of loans in the 90 days, then it will be termed as NPA, and then NBFC has to do provisioning for the same.
  • If NPAs get out of control for NBFCs, then RBI might take Prompt-Corrective Action against NBFCs and Housing Finance companies then they will not be allowed to do new businesses.

What Should Investors Do?

Despite the strict rules and guidelines of the Reserve Bank of India, there is still a high growth opportunity available for these NBFCs and housing finance players. With the changing scenario, it will interesting to watch whether these NBFC players will obtain Banking licenses or will get merged with some other banks.

Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.

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