India cenbank gives HDFC Bank selective regulatory relief post HDFC merger (updated)

Housing Development Finance

21/04/2023 12:18

(Adds details throughout)
       MUMBAI, April 21 (Reuters) - The Reserve Bank of India
has allowed HDFC Bank Ltd  HDBK.NS  and Housing Development
Finance Corp Ltd (HDFC)  HDFC.NS  selective regulatory relief to
smooth out the merger between the two organisations, set to
conclude by July this year.
    The central bank has permitted the bank to meet priority
sector lending requirements in a staggered fashion over three
years, HDFC Bank said in an exchange notification on Friday.
    These requirements, which include lending to weaker segments
of the economy, are linked to an organisation's loan book.
    In 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  HDFL.NS  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.

 (Reporting by Ira Dugal; Editing by Janane Venkatraman and
Savio D'Souza)
 ((Ira.Dugal@thomsonreuters.com; +91-9833024892;))