Shares of HDFC Life Insurance Company, HDFC, and HDFC Bank were trading higher on Wednesday, in sync with the broader market. The stocks got a boost after the Competition Commission of India gave an approval to mortgage lender HDFC to acquire over 50% stake in HDFC Life. This means, HDFC Bank will own over 50% stake in HDFC Life following the amalgamation of HDFC with the private lender. The statutory body has also given similar approval for the combined entity's shareholding in HDFC ERGO.

The CCI’s decision to allow the merged entity, HDFC-HDFC Bank, to own over 50% stake in HDFC Life would be a positive for the insurance company. Boosted by the development, HDFC Life shares gained as much as 2.5% to ₹659.90 in the early deals on the BSE. The stock of the life insurance company opened marginally higher at ₹644 against the previous closing price of ₹643.75. On the volume front, 1.4 lakh shares changed hands over the counter as compared to the two-week average volume of 0.97 lakh stocks, while the market capitulation rose to ₹1.4 lakh crore.

Similarly, HDFC and HDFC Bank shares climbed over 1% each in the first hour of trade so far. In comparison, the BSE Sensex was trading 162 points, or 0.26%, higher at 63,490 level, at the time of reporting.

As per the latest shareholding pattern available on the BSE, promoter group entities hold 50.31% stake in HDFC Life, including 48.65% by HDFC, and the remaining shares are owned by public shareholders.

In April this year, the Reserve Bank (RBI) of India allowed HDFC Bank or HDFC to raise their shareholding in both insurance companies - HDFC Life and HDFC ERGO - to over 50% prior to the effective date of the merger. For priority sector lending norms (PSL), the RBI said that adjusted net bank credit (ANBC) may be computed considering one-third of the outstanding loans of HDFC as of the effective date of the merger for the first year. The remaining two-thirds of the portfolio of HDFC will be considered over the next two years equally. Besides, the central bank further clarified that bank will have to comply with cash reserve ratio (CRR), statutory liquidity ratio (SLR) and Liquidity Coverage Ratio (LCR) requirements.

According to domestic brokerage Prabhudas Lilladher, this relaxation will be a positive for HDFC Life and HDFC AMC as it would remove the overhang of Return on equity (ROE) dilution in the merged entity due to likely stake sale of subsidiaries/associates. 

On PSL relaxation, the brokerage said that the norms would apply within 1-year after the merger i.e. in FY25E. “Basis feedback from management and our calculations, the merged entity would not incur any PSL cost in FY25E due to this dispensation. Our previous estimate of PSL cost was ₹1,900 crore on 2% of core PAT (merged). This also gives bank some leeway as it wants to build the PSL portfolio organically via deepening penetration in villages (thru CRB), while evaluating other options (like IBPC, co-lending, PTC, PSLC and RIDF),  said Gaurav Jani, Research Analyst, Prabhudas Lilladher.

On no relaxation on CRR, SLR, and LCR, the agency said that dispensation in terms of affordable housing bonds may not be available, which would increase CRR, SLR needs albeit minimally. “Additional CRR needed would be ₹4,000-₹5,000 crore while SLR deficit may be ₹10,000-₹15,000 crore (earlier surplus ₹13,000 crore); however, NIM impact would be insignificant,” it added.

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