HDFC, India's largest housing finance company, is all set to merge with HDFC Bank, the largest private sector lender in the country. The merger is expected to be completed by June. Customers of HDFC, whether borrowers or depositors, will witness certain changes after the merger.
There are around 21 lakh deposit accounts in HDFC, according to its website. Let's find out what will change for these depositors after the merger.
HDFC Bank-HDFC merger: How interest rates of FDs are going to change
The interest rates of fixed deposits (FDs) in HDFC Bank have typically been lower than those offered by HDFC, a housing finance company. For instance, if you invest in a fixed deposit of below Rs 2 crore for a tenure of 66 months in HDFC, you will receive an annual interest of 7.45 per cent, as on May 8, 2023. HDFC Bank is offering an interest rate of 7 per cent for a similar tenure.
For retail deposit in the housing finance company, the interest rates range from 6.95 per cent to 8 per cent. The tenure of retail FDs range from 22 months to 120 months in HDFC. In HDFC Bank, the interest rates of retail fixed deposits range from 3 per cent to 7.5 per cent whereas you can go for any tenure of choice.
HDFC Bank-HDFC merger: What is special for senior citizens?
For senior citizens, the housing finance company offers an additional interest rate of 0.25 per cent for deposits up to Rs 2 lakh. However, HDFC Bank offers an additional interest rate of 0.50 per cent on fixed deposits by senior citizens. As you can see, there is a difference in the interest rates offered by HDFC and HDFC Bank.
Also Read: HDFC-HDFC Bank merger: What will change for HDFC home loan borrowers? Will home loan interest rates go down?
How the compounding of interest will change for HDFC customers
For cumulative retail fixed deposits in HDFC, the indicated interest rate is compounded annually. On the other hand, the interest is compounded quarterly for cumulative fixed deposits in HDFC Bank. So, if you have to compare both the interest rates, it will be better to take the annual yield of the bank FD and compare it with the cumulative annual interest rate of the FD of the housing finance company. For instance, the highest interest rate of FD in HDFC Bank on a tenure of 18 months or above is 7 per cent. However, after quarterly compounding throughout the year, it will give an annual yield of 7.19 per cent. Meanwhile, the housing finance company offers an annual yield of 7.25 per cent for tenure of 24-35 months, 7.30 per cent for tenure of 36-60 months and 7.20 per cent for tenure of 61-120 months on its regular fixed deposits.
HDFC Bank-HDFC merger: What depositors must know
The merged entity, which will be known as HDFC Bank, is likely to offer the depositors of the housing finance company an option to either withdraw their money or renew deposits with the private sector bank at the interest rate being offered by it. Those who renew their FDs with HDFC Bank are likely to get marginally lower interest rates compared to what they got in HDFC. "Those who do not renew, the amount on maturity will automatically get deposited in the savings account in HDFC," says Dev Ashish, a SEBI-registered investment advisor (RIA) and Founder, StableInvestor.
Those who have opted for auto renewal while booking their FDs will get the interest rates offered by HDFC Bank after the renewal. Under automatic renewal, the fixed deposits are automatically renewed for a similar tenure at the prevailing interest rate applicable on the date of maturity.
HDFC pays an additional interest rate of 0.05 per cent on individual deposits placed or renewed through the online deposit system and auto-renewed deposits. Investors are likely to lose such benefits as HDFC Bank does not currently offer such incentives for its FD investors.
HDFC Bank-HDFC merger: Premature withdrawal rule to change
Do note that other rules of fixed deposits in HDFC, such as premature withdrawal norms, are likely to change after the merger. At present, your request for premature withdrawal may be approved at the sole discretion of HDFC. According to HDFC’s website, the “request for premature withdrawal may be granted at the sole discretion of HDFC and cannot be claimed as a matter of right, subject to the Non-Banking Financial Company – Housing Finance Company (Reserve Bank) Directions, 2021 as applicable from time to time.”
In the housing finance company, premature withdrawal is not allowed before the completion of three months from the date of deposit. For premature withdrawal after three months and before six months, the interest earned on the FD will be 3 per cent per annum for individual depositors, and no interest will be paid in case of other categories of depositors, the housing finance company has said. For partial withdrawal of fixed deposits after six months, the interest rate payable will be one per cent lower than the interest rate applicable on the deposit for the period it has run. If no rate has been specified for that period, then the interest rate will be 2 per cent lower than the minimum rate at which public deposits are accepted by HDFC.
However, the premature withdrawal rule of HDFC Bank is different. You can break your FD prematurely in HDFC Bank with a penalty. For premature closure of deposits in HDFC Bank, the interest rate will be lower of
1) The rate for the original/contracted tenure for which the deposit has been booked OR
2) The base rate applicable for the tenure for which the deposit has been in force with the bank.
For deposits booked on or after March 7, 2019, the base rate is the rate applicable to deposits of less than Rs 2 crore as on the date of booking the deposit, according to HDFC Bank’s website.
So, premature withdrawal rules of fixed deposits will change for HDFC depositors after the merger.
HDFC-HDFC Bank merger: Bank customers to get depositors’ insurance for fixed deposits
The deposits in scheduled banks such as HDFC Bank are insured up to Rs 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.
It offers protection to deposit holders in a bank when the institution fails or is put under a moratorium by the RBI. This includes all deposits held by the depositor in current accounts, savings accounts, fixed deposits, recurring deposits and so on.
Once the fixed deposits of HDFC come under HDFC Bank, the deposits will be protected under the deposit insurance scheme, said an HDFC spokesperson.
"Depositor's insurance will be available to even those who renew their deposits after the merger with HDFC Bank. However, they might not get the benefit of a slightly higher interest rate which HDFC Limited used to provide to its depositors." said Ankit Jain, Partner, Ved Jain & Associates, a chartered accountancy firm.
"After the merger, HDFC Limited will cease to exist. Any person who wishes to make a deposit with HDFC, will need to make a deposit with HDFC Bank. They will be treated at par with any other customer of the bank and privileges if any one enjoyed being a depositor with HDFC Limited will not be available," Jain added.
"Post the merger, the HDFC FDs might get converted to HDFC Bank FD and the insurance will apply. We see no impact on the customers as such. However, the risk goes down substantially as the merged entity will be a large diversified large bank and not just a home loan based NBFC," said Akshar Shah, Founder & CEO at Fixed, an investment platform.
HDFC’s depositors are serviced through 420 offices spread across India, with services provided at 77 deposit centers, according to its website.
Once the merger is effective, all HDFC branches would be retained and mortgages would continue to be offered from these outlets, Deepak Parekh, HDFC Chairman, had said during a media conference on April 4. Over a period of time, these branches would be converted to full-service bank branches wherever possible, he added.
