HDFC Bank secures RBI approval for step-down subsidiary

The Reserve Bank of India (RBI) has accorded its approval to HDFC Bank for setting up a step-down subsidiary. The step-down subsidiary will be set up through HDFC Securities Limited for offering broking and clearing services.

“The Reserve Bank of India has, vide its letter dated May 13, 2022, conveyed its approval to the bank for setting up a step-down subsidiary through HDFC Securities Limited (the bank’s subsidiary), for offering broking and clearing services in International Financial Services Centre (IFSC) at GIFT City, on the terms as prescribed by the RBI,” the private sector lender told the exchanges on Saturday.

Following the announcement, HDFC Bank shares saw an uptick, opening at ₹1,297 against the previous close of ₹1290.95. At the time of reporting, HDFC Bank shares were trading 11.40 points, or 0.88%, higher at ₹1,302.80.

Last month, HDFC Bank, country's largest private sector lender, announced plans to merge Housing Development Finance Corporation (HDFC), India's largest housing finance company, along with HDFC Investments Limited and HDFC Holdings Limited.

Once the amalgamation scheme comes into effect, the subsidiaries and associates of HDFC Limited will be transferred to HDFC Bank. The subsidiaries of HDFC Bank and HDFC include HDFC Credila and HDB Financial Services in the lending sector, along with HDFC Life, HDFC Pension, HDFC Mutual Fund, HDFC ERGO General Insurance Company, HDFC Property Fund, and others.

As part of the merger scheme, shareholders of HDFC as on the record date will receive 42 shares of HDFC Bank for 25 shares held in HDFC. Meanwhile, the equity shares held by HDFC in HDFC Bank will be extinguished as per the scheme.

Once the merger is completed, HDFC Bank will be 100% owned by public shareholders and existing shareholders of HDFC will own 41% of HDFC Bank. The subsidiaries of HDFC will become associates of HDFC Bank.

According to HDFC Bank, the proposed transaction will create a large balance sheet and net-worth that would allow greater flow of credit into the economy. It will also enable underwriting of larger ticket loans, including infrastructure loans, the lender added.