RBI grants partial relief to HDFC Bank, HDFC ahead of merger

The Reserve Bank of India on Friday granted some relief to HDFC Bank and HDFC in a bid to smoothen out the merger between the two entities, which will conclude in July, the bank informs in a regulatory filing. RBI approved HDFC Bank or HDFC (Housing Development Finance Corporation) Limited to increase the shareholding to more than 50% in HDFC Life Insurance Company Limited and HDFC ERGO General Insurance Company Limited prior to the effective date of the merger, the lender says in the filing.

The apex bank has also permitted HDFC Bank to continue holding HDFC Limited’s stake in HDFC Education and Development Services Private Limited, which is engaged in operating three education schools for a period of two years from the effective date of the merger. In HDFC Credila Financial Services Limited, however, the HDFC Bank is required to bring down the shareholding to 10% within two years from the effective date of the merger and not to onboard new customers.

The RBI has also allowed both HDFC Bank and HDFC Limited to meet priority sector lending goals in three years post-merger. "Adjusted Net Bank Credit may be calculated considering one-third of the outstanding loans of HDFC Limited as on the Effective Date of the Amalgamation for the first year. The remaining two-thirds of the portfolio of HDFC Limited shall be considered over a period of the next two years equally," the bank says.

However, the apex bank has asked the private sector lender to continue to comply with extant requirements of CRR (cash reserve ratio), SLR (Statutory Liquidity Ratio), and LCR (liquidity coverage ratio). For interest rate benchmarks, HDFC Bank is required to do a one-time mapping of all borrowers of HDFC Limited. “All retail, MSME and other floating rate loans sanctioned by HDFC Limited would be linked to appropriate benchmark within six months from the effective date,” the private sector lender says.

Based on the list submitted by HDFC Limited, RBI has permitted loans against shares for promoter contributions / in excess of ₹20 lacs to the individuals, to continue for its existing duration/maturity.

The development comes a day after the country’s largest private sector lender appointed Kaizad Bharucha as the Deputy Managing Director, and Bhavesh Zaveri as the Executive Director of HDFC Bank for a tenure of the next three years, after RBI’s approval.

In April last year, HDFC Bank, which is the country’s largest private sector lender, and HDFC, India’s largest housing finance corporation, announced their merger to create long-term value for all stakeholders, including customers, employees, and shareholders of both entities. The proposed transaction is to create a large balance sheet and net worth that would allow a greater flow of credit into the economy.  Post the amalgamation, HDFC Bank will be 100% owned by public shareholders and existing shareholders of HDFC will own 41% of HDFC Bank.