Ahead of HDFC Bank and HDFC merger, the Reserve Bank of India (RBI) has given some relaxations in regulatory normswhile refusing others. On Friday, HDFC in an exchange filing said that it will have three years to comply with the priority sector lending norms (PSL) following its merger with HDFC Ltd (HDFC). However, RBI refused to make any exceptions on cash reserve ratio (CRR) and statutory liquidity ratio (SLR) requirements.
Last April, the merger of HDFC Bank and Housing Development Finance Corporation (HDFC) was announced. The largest corporate merger in India’s business history waiting for the final regulatory go-ahead. HDFC Bank has asked the regulators to ease several regulatory criteria.
The bank said that it has received a letter from RBI with views on certain matters.
“HDFC Bank shall continue to comply with extant requirements of CRR, SLR, and LCR (liquidity coverage ratio) from the effective date (of merger) without exceptions,” the lender said quoting the letter from RBI.
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CRR is the percentage of deposits that a commercial bank like HDFC Bank has to park with the central bank for which it does not earn any interest, while SLR is a percentage of deposits that are mandated to be invested in government securities. A non-bank lender is exempt from the same requirements and HDFC Bank had sought leeway on compliance.
On PSL, the RBI said that adjusted net bank credit may be calculated considering one-third of the outstanding loans of HDFC Limited as of the effective date of the merger 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.
Under the PSL norms, commercial banks are required to devote over 40 per cent of their overall advances to areas marked as priority sectors for the emancipation of certain marginalised sections of society, whereas a non-bank lender like HDFC does not have to comply with such mandates.
The RBI has also allowed for the investments including subsidiaries and associates of HDFC to continue as investments of HDFC Bank, the letter said, adding HDFC Bank or HDFC can increase shareholding in HDFC Life Insurance Company and HDFC ERGO General Insurance Company to over 50 per cent prior to the effective date of the merger.
For a period of two years following the merger’s effective date, HDFC Bank may continue to hold HDFC’s stake in HDFC Education and Development Services, which manages three educational institutions, and in HDFC Credila Financial Services, as long as the shareholding is reduced to 10 per cent within time and no new clients are onboarded.
According to the letter, the bank will engage with the RBI to clarify several points in the letter it received on Thursday and will also present the RBI with the crystallised amounts of the liabilities as of the effective date.
In a separate release, HDFC said that the markets regulator SEBI has allowed ownership change of HDFC Mutual Fund, from HDFC to HDFC Bank. HDFC has a 52.6 per cent stake in the mutual fund arm.