HDFC Bank bonus shares explained: How they differ from a stock split

The HDFC Bank board would consider its first ever bonus issue on July 19. If declared, the bank would join BSE500 companies such as Motherson Sumi Wiring India Ltd, Samvardhana Motherson International Ltd, Ashok Leyland Ltd, Container Corporation Of India Ltd, Bajaj Finance Ltd, Anand Rathi Wealth Ltd, Indraprastha Gas Ltd and Garware Technical Fibres Ltd, which declared bonus shares in in Calendar 2025 so far.

The HDFC Bank board will also consider a special interim dividend, while delivering its June quarter results on the same date. 

Bonus shares explained
Bonus shares are issued in a certain proportion only to the existing shareholders. If the bonus ratio of 2:1 is announced, it would mean HDFC Bank investors who already own one share in the private lender would get two additional new shares. Similarly, If the ratio is 3:1, investors holding one share would get three additional shares.  

Total holding of shares in the case of 2:1 would now be three shares instead of one share. Likewise, in the case of 3:1 ratio, the total holding of shares would be four shares.

Investors would not need to pay any money for those addition shares, as HDFC Bank -- if it decides to issue bonus shares, would utilise the cash lying in free reserves and surplus of the company. 

New shares would be issued at the existing face value of equity shares of the company. In the HDFC Bank's case, the face value is Re 1. Besides, the face value would remain the same post bonus issue.

Bonus issue impact on share price
The bonus issue would increase the number of HDFC Bank's outstanding equity shares. It would reduce free reserves and surplus of the bank and, thus, its share ratio and earnings per share (EPS). This would result in a drop in its share price. On Wednesday, HDFC Bank shares were trading 0.48 per cent higher at Rs 2,004.85. 

Bonus issue examples
The impact of bonus share can be explained with the example of Ashok Leyland, whose shares turned ex-date for dividend today. 

Ashok Leyland had announced bonus shares in the 1:1 rario. The stock, which settled at Rs 250.85 on Tuesday, opened at Rs 125.70 on Wednesday, post the adjustment. Certain trading apps which might be showing the unadjusted share price for Ashok Leyland, thus, suggested an up 50 per cent-odd fall on the counter. Existing stock investors would now hold two Ashok Leyland shares for every one they held. 

Bajaj Finance Ltd was recently in news after it turned ex-date for stock split and bonus issue. The NBFC had announced a stock split in the ratio of 1:2 and a bonus issue in the ratio of 4:1. 

Bonus issue vs stock split
In the bonus issue, free additional shares given to existing shareholders based on number of shares owned. In the case of stock split, however, already owned stock is split into smaller shares.

While the main purpose of bonus issue is to distribute gains of accumulated earnings without paying cash to the shareholders, stock split is carried out to improve liquidity on the counter by breaking it into smaller size. While face value remains same in the bonus shares, it drops following the stock split. 

For example, it the stock split ratio is 1:5, every already owned share is split into 5 new shares of new FV of 1/5 of original face value.

Since the dividend is typically paid on the face value, stock split reduces the future dividend in the same proportion. In bonus issue, it remains the same.