HDFC mega merger: What does it mean for the mortgage lender’s customers

With the mega merger of HDFC Bank and HDFC Ltd just round the corner, ET takes a look at what this means for home loan borrowers, bondholders of the mortgage lender, and its deposit holders.

What changes for HDFC Ltd deposit holders?

HDFC Ltd deposit holders have always enjoyed marginally higher interest rates as compared to HDFC Bank. Currently, a 12 to 15 months fixed deposit earns 7.3% rate of return for HDFC Ltd deposit holders while for the bank, it’s 7.1%.At the time of the merger, the bank is likely to give deposit holders of the mortgage company an option to either withdraw their money or renew deposits at the interest rate being offered at that time. While the rules are not yet clear, the interest rates are unlikely to change till maturity. Those opting for renewal of fixed deposits would likely get marginally lower interest rates compared to what they got at HDFC.

Premature withdrawal of deposits
At present, HDFC Ltd depositors cannot prematurely withdraw their deposits before completing three months from the date of deposit. Even after that, such untimely withdrawals are at the discretion of the lender and interest rates are substantially lower.

But in HDFC Bank, deposit holders can break their fixed deposits prematurely after paying a penalty. Deposit insurance in play
The deposits in scheduled banks such as HDFC Bank are insured up to ₹5 lakh under the RBI’s deposit insurance scheme. This insurance includes the principal and interest amounts. The insurance cover is provided by the Deposit Insurance Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the RBI.

Home loan borrowers
Post-merger, all HDFC Ltd loan accounts will get converted to HDFC Bank loan accounts.

At present, housing finance company borrowers are not linked to the external benchmark rate like EBLR, which is mandatory for scheduled banks.

Hence, post-merger, HDFC Ltd customers could be given an option to link their loans to external benchmarks, like the repo rate.

Bondholders
While the details are not clear, the mortgage lender could be permitted to carry forward all the bonds raised prior to the merger. This would have led to negligible impact on HDFC Ltd bondholders.