RBI Gives HDFC Bank Selective Regulatory Relief Post HDFC Merger
- RBI has permitted the bank to meet priority sector lending requirements in a staggered fashion over three years
The Reserve Bank of India (RBI) has allowed HDFC Bank Ltd and Housing Development Finance Corp Ltd (HDFC) selective regulatory relief to smooth out the merger between the two organisations, set to conclude by July this year.
RBI has permitted the bank to meet priority sector lending requirements in a staggered fashion over three years, HDFC Bank said in a regulatory filing.
These requirements, include lending to weaker segments of the economy, are linked to an organisation's loan book.
At the end of the first year after the merger, the combined entity will need to include one-third of HDFC's loan book to calculate the amount of priority sector lending required.
Priority sector lending on the remaining part of the loan book would need to be met over the next two years, HDFC Bank said in the statement.
However, immediately after the merger, the combined entity, which will be called HDFC Bank, will need to comply with requirements to hold a certain level of cash reserve ratio, statutory liquidity ratio and liquidity coverage ratio on the entire merged balance sheet.
Earlier this week, Reuters reported that the bank and the housing financier had raised adequate liquidity to meet these requirements from the start.
Investments and associates of HDFC will be allowed to continue as investments of the combined HDFC Bank although the bank will need to exit a few select ventures over time.
However, the RBI said that before the merger closes, HDFC Bank or HDFC can increase their shareholding to more than 50% in HDFC Life Insurance Co Ltd and HDFC ERGO General Insurance.
But HDFC Bank has two years to both exit HDFC's investment in HDFC Education and Development Services and reduce its stake in HDFC Credila Financial Services to 10%.
As per norms applicable to the banks, HDFC Bank will have to transition all HDFC's retail and small business borrowers to an external benchmark, like the repo rate, within six months of the merger.
Housing finance companies have greater flexibility than banks in providing loans against shares. The RBI has allowed HDFC Bank to allow existing loans against shares within the HDFC portfolio to continue until maturity, the notification said.
A few key issues still await clarity from the RBI, the bank's management said at an analyst call on Friday.
The merged entity will be seeking clarity on whether HDFC's borrowings, including those from banks, will be allowed to continue till maturity, said the bank's CFO Srinivasan Vaidyanathan on the call.
HDFC, as a non-bank lender, is allowed to borrow from banks but HDFC Bank is not allowed to borrow from other banks.
Clarity is also needed on loans given by HDFC for land and to core investment companies, he said.
Catch all the
Corporate newsand Updates on Live Mint. Download The
Mint News Appto get Daily
Market UpdatesBusiness News.
Next Story
No Network
Server Issue
Internet Not Available
Labour's Winning Streak: Momentum Builds In The 2024 Local Elections
As the 2024 local elections unfold, Labour has emerged as a formidable force, securing a series of significant victories... Read more
Revisiting Campus Conflict: Rethinking The Role Of Law Enforcement Amidst Student Protests
Recent clashes between protesters and law enforcement at Columbia University and other American campuses have sparked re... Read more
Pro-Palestinian Protests Surge: Unveiling Fault Lines On American Campuses
In recent months, American universities have become the focal points of escalating pro-Palestinian protests, with events... Read more
Hong Kong Introduces Groundbreaking Cryptocurrency ETFs For Retail Investors
Hong Kong has entered a new era in the realm of cryptocurrency investments with the recent introduction of the first spo... Read more
UK's Local Elections 2024: A Decisive Political Landscape Shift
In the spring of 2024, the United Kingdom witnessed a pivotal moment in its democratic process as local elections unfold... Read more
The Fragile Lifeline: America's Aid To Ukraine Amidst Political Struggles
Amidst escalating tensions with Russia, the United States has once again extended a vital lifeline to Ukraine in the for... Read more