HDFC Bank to merge with mortgage lender HDFC Ltd

India's largest private lender HDFC Bank will merge with the country's largest housing finance company HDFC Ltd to create a financial services conglomerate, the companies said on Monday, sending their shares sharply higher.

As part of the deal, shareholders of HDFC Ltd will receive 42 shares of the bank for 25 shares held. Existing shareholders of HDFC Ltd will own 41% of HDFC Bank.

Shares held by the housing finance company in the lender will be extinguished, making HDFC Bank a full-fledged public company.

HDFC Bank shares jumped as much as 10%, while HDFC Ltd surged 13% after the announcement.

Analysts believe the merger could be the outcome of a recommendation by the Reserve Bank of India in November 2020 that well-run large shadow lenders with an asset size of over 500 billion rupees may be considered for conversion into banks.

As of Friday's close, HDFC Bank had a market value of 8.34 trillion rupees ($110.06 billion), while HDFC Ltd was worth 4.44 trillion rupees ($58.59 billion).

The subsidiaries and associates of HDFC Ltd will shift to HDFC Bank, the companies said in a regulatory filing.