HDFC Bank merger to shake up debt market

The consolidation of Housing Development Finance Corp. and unit HDFC Bank Ltd. will create a more than $200-billion financial services behemoth, and the parent will be able to tap the bank’s deposits to grow, rather than pile on more debt. That’s not all bad for India’s bond world as the hole created by the mortgage lender may let new borrowers sell notes, helping India deepen its debt market.

The lender is India’s biggest bond seller in 2022, with its issuance accounting for 7.7 per cent of the country’s total issuance volume this year, higher than an average of about 6 per cent in the last 10 years, Bloomberg-compiled data show. The merged entity will be a bank and is still likely to offer notes when needed to boost its capital buffers and fund infrastructure projects.

“HDFC’s exit will initially hurt overall sales volume next year,” said Jayen Shah, founder of Mavuca Capital Advisors Pvt., a fintech investment banking firm. “I expect a lot of first-time issuers, state and private companies tapping the bond market next year as yields stabilise, which may then gradually fill the void.”