HDFC Ltd, India’s largest housing finance lender, has found a home in HDFC Bank, its subsidiary, which also happens to be the largest private sector bank in the country. “After 45 years in housing finance, after providing 9 million homes to Indians, we have to find a home for ourselves, and we have found a home in our own family company HDFC Bank,” Deepak Parekh, chairman of HDFC Ltd said on Monday at the press conference following the announcement of the merger of HDFC twins.
The deal is subject to approval from various regulatory and statutory authorities in the country such as banking regulator RBI, markets regulator SEBI and competition regular CCI, however Housing Development Finance Corporation’s Deepak Parekh said he is very hopeful and positive that the company will get the necessary approvals. Until the merger is completed, the two companies will function as separate entities.
We are positive we will get approval because it is positive for the economy, you need large banks in India. RBI is encouraging NBFCs (Non banking financial companies) to become banks. “And for the NBFCs also, the (regulatory) arbitrage which was available in the past is also narrowing, so there’s limited advantage for the NBFCs, as regulations similar to banking regulations are coming for the NBCFs,” he added.
On one hand, RBI is tightening the policy environment for the NBFCs (Non banking financial companies) now, and making compliance at par with banks in terms of risk exposure, and capital requirement ratio. At the same time, the SLR (Statutory Liquidity Ratio) for banks has reduced over time. SLR has come down to 22 per cent now, from 38.5 per cent in 1991-92.
On being asked about management changes post the deal, Parekh said the deal will take about 15 to 18 months to complete, and the RBI rules do not allow anyone above 75 years of age to be on the board of a bank. “I have already crossed that age,” he said without saying what role the current chief executive of HDFC Keki Mistry will have post the merger. He also said employees of both the entities will not be affected by the merger.
Parekh said the company was working on the deal for the last three weeks. The board of the two companies approved the merger earlier on Monday and the announcement came about 15 minutes before the markets opened. Shares of both entities jumped 10 per cent in early trading. HDFC Bank shares were up as much as 14% while HDFC Ltd shares rose as high as 19.6% in intraday trading.
The merger will lead to better synergies and returns for the shareholders, HDFC Chairman Deepak Parekh said at the press conference, adding that the merger will help enhance the market share of the bank, mitigate single product risk, and diversify its offerings. At the conference, HDFC Bank’s chairman Atanu Chakraborty said the deal is complementary in nature and will enhance value for customers.