Saturday, May 28, 2022
HomeBusinessRBI norms enabled, nudged HDFC-HDFC Bank merger

RBI norms enabled, nudged HDFC-HDFC Bank merger

MUMBAI: A series of regulatory changes in recent months have been the tipping point for the HDFC-HDFC Bank merger, which has been speculated for years. While some of the changes were enablers, the others — which tighten rules and reduce regulatory arbitrage — incentivised the boards to consider a merger.
Another major factor is that both HDFC and HDFC Bank were led by powerful personalities and strong leaders — Deepak Parekh and Aditya Puri, who had built the respective institutions. Puri retired in October 2020 when he turned 70. Parekh admitted on Monday that he would not be part of the bank because of the age limit on directors. This has ensured that the amalgamation would not result in a clash of personalities.

Among the changes that were in the form of a regulatory nudge was the RBI’s decision to harmonise regulation for large non-banking finance companies (NBFCs) and banks. As part of this, from the previous quarter, finance companies were required to maintain a portion of their funds in liquid government securities to meet norms on liquidity coverage ratio. This brought the cost of compliance close to that of banks. Second, the RBI also said that NBFCs have to follow the norms for bad loan classification that apply to banks. Earlier, NBFCs could offer their borrowers more flexibility on repayment.
Large finance companies like HDFC were required to put in place core financial systems that were on a par with core banking systems deployed by banks.
HDFC Bank MD & CEO Sashidar Jagdishan said that a merger was examined six years ago. However, at that point, the reserve requirements were 27% of deposits and interest rates were around 8%. Also at that time, the bank did not have much of a rural footprint to meet the priority sector requirement.
“Six years later, a lot of things have changed. The interest regime itself has come down dramatically. The bank has learnt to unleash product offering in the micro enterprises sector and that qualifies for priority sector,” said Jagadishan. He said that there is a very large market for priority sector certificates that can be used to comply with RBI’s norms.
Although HDFC Bank has sought a dispensation to meet the reserve requirements over three years, analysts say that the bank will be able to comply even without a dispensation. Sources said that the bank has close to Rs 1 lakh crore of liquid funds. While the bank would prefer to deploy the funds in more productive assets like loans, it can use this surplus liquidity to buy more government bonds.

Source link



Please enter your comment!
Please enter your name here

Most Popular

Recent Comments

%d bloggers like this: