A merger-related forbearance is now being discussed with the RBI: Deepak Parekh of HDFC
- ByStartupStory | November 26, 2022
According to HDFC Chairman Deepak Parekh, HDFC Bank has asked the Reserve Bank of India for some merger-related forbearances and is awaiting a decision.
“HDFC Bank has been in discussions with RBI seeking forbearance for certain assets, liabilities, and investments in all subsidiaries, including HDFC ERGO. But, the merged entity is expected to have sufficient liquidity and alternatives available to meet the necessary liquidity and fund requirements,” Parekh said.
He was speaking during the company’s extraordinary general meeting, which the NCLT called in order to ask shareholders for their consent to the merger of HDFC and HDFC Bank. At HDFC Bank’s EGM, which was also convened on Friday, MD and CEO Shashidhar Jagdishan stated that the merged bank’s capital adequacy ratio is anticipated to rise by roughly 20–30 basis points. The merger’s effective date is now set for June 2023, according to first clearances, according to Parekh.
Shareholding and investments
According to Parekh, all HDFC investments, including those of YES Bank and Bandhan Bank, will be transferred to HDFC Bank in accordance with the RBI’s decision. He also stated that the bank will be responsible for any expenditures incurred following the merger. Shares of HDFC Bank will be issued to HDFC shareholders based on the share exchange ratio, and overseas portfolio investors will also become HDFC shareholders as of the record date.
“We understand that foreign shareholdings in the merged entity would be within permissible limits. Foreign holding limit in HDFC Bank is 74 percent,” he said. The share distribution will take place on the merger’s effective date, according to Jagdishan, but it may take some time before the new shares can be traded.
“We need to separate ISIN numbers and wait for the approvals of the exchanges, post which the shares that have been allotted will be allowed to trade,” he said, adding that the record date could be 2-3 days post allotment.
Merger underway
An integration committee and other subcommittees have been established by HDFC and HDFC Bank to enable the seamless integration of all business verticals and corporate operations. Proper integration is being worked on by more than 100 senior personnel from each side, according to Parekh, who added that the management has identified 40 work streams.
After the merger, the ratio of term deposits to CASAs at HDFC Bank may change, which could initially affect the combined entity’s NIMs. However, as HDFC’s higher cost of borrowing is replaced, NIMs will return to the bank’s earlier level, according to Parekh.
“Mortgage has a higher RoE and consumes less capital as risk weightages are lower. No additional capital will be required as both entities have adequate capital. Hence, we don’t expect any major impact,” he said.
According to the joint financial statements, HDFC Bank will not fall short of its lending goals for the priority sectors on day one of the merger, even if the RBI does not grant forbearance, according to Parekh. This is so that HDFC Bank will have approximately 12 months to comply with the requirements since the computation of the limits is based on the credit exposure of the prior year.
Operational integration
According to Parekh, who added that HDFC has 3,897 employees and HDFC Bank has 1,60,992 employees, all HDFC employees who have not reached the age of superannuation of 60 years will be incorporated into HDFC Bank at terms “not less favorable than those in which they were engaged by HDFC.”
In order to include the senior management of HDFC, the board of directors of HDFC Bank may undergo some changes, according to Atanu Chakraborty, chairman of HDFC Bank, who will also serve in that capacity for the combined company. According to Jagdishan, he anticipates “fairly small” rationalization or duplication from HDFC’s 508 branches and 39 hub locations, and the bank would anticipate absorbing all of them. He continued by saying that the bank will receive all HDFC deposits at the same interest rate and maturity.
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