India's HDFC Bank Ltd will keep home loans at the centre of its growth strategy after a merger with HDFC Ltd is concluded, with such credit likely to make up nearly a third of the bank's portfolio going forward, two senior officials at the group said.

The pace of growth in home loans will broadly mirror growth seen in HDFC's home loan portfolio, the first official said, declining to be identified as strategy discussions are not public.

Individual home loans have grown at a compounded annual rate of 16% over the last five years, according to its investor presentation.

The home loan segment is seen as a steady growth business with low delinquencies and has seen a boost since the pandemic.

While the share of portfolio will oscillate based on growth in other segments, the group is comfortable with it staying at current levels, the official said.

"We see home loans as a secured sticky product which can generate sticky deposits and spur lending into a number of home-related personal loan categories," the official added.

The merger, announced in April last year and set to conclude in early July, will see India's largest housing financier merge with the bank it parented in 1994 - now the country's largest private lender.

Post the deal, HDFC's 7.2 trillion rupee ($87.32 billion) portfolio will be transferred to the bank and make up about 30% of its overall loan book. This includes individual housing loans worth 6.02 trillion rupees. The housing loan business will not function as a separate vertical, but HDFC's front-line staff will continue to lead growth in that product, while expanding offerings to other retail loans as well, the second official said.

The first official added that credit decisions for home loans will roll into the bank's broader credit department.



As part of the merger, HDFC's subsidiaries will be transferred to the bank.

HDFC Bank, whose second-largest segment is its banking business, will raise its stake in the life insurance business from 48.7% to over 50%, and from 49.9% to over 50% in the general insurance segment.

Both transactions will be concluded before the merger and could happen via the open market or through bilateral deals, the officials said.

The Reserve Bank of India has also asked HDFC to sell a majority stake in its education loan arm Credila Financial Services, valued at close to $1.2 billion-1.5 billion, due to an overlap with the bank's business.

While this transaction will not conclude before the merger, negotiations are at an advanced stage, the second person said.

HDB Financial, HDFC Bank's non-bank lending arm, will continue as a separate entity and move towards a listing before 2025, the first official said.


Post the merger, foreign shareholding in the combined entity is seen at about 60%-62%, the first person said.

This could allow the bank to be added into the MSCI index for the first time since 2013, potentially bringing in foreign inflows into the bank. ($1 = 82.4510 Indian rupees)

(Reporting by Ira Dugal and Siddhi Nayak; Editing by Sonia Cheema)