In April 2023, the Reserve Bank of India (RBI) provided a relaxation of 3 years for HDFC Bank, India’s largest private sector lender, to meet Priority Sector Lending (PSL) requirements after its merger with Housing Development Finance Corporation (HDFC) Limited.
- The RBI has refused to make any exceptions on Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements as sought by HDFC Bank.
Key Points:
i.The RBI has allowed HDFC Bank to consider a third of the outstanding HDFC loans in the first year of the merger. The remaining two-thirds of the portfolio of HDFC will be considered over the next two years equally.
ii.HDFC Bank has to set aside 4.5% of HDFC’s assets as CRR and 18% as SLR after the merger.
- CRR is the percentage of deposits which the HDFC Bank has to park with the central bank for which it does not earn any interest, while SLR is a percentage of deposits which are mandated to be invested in government securities.
- HDFC bank carries around 24-25% investments in government securities as against the 18% requirement.
Note – CRR/SLR norms are not applicable for NBFCs.
iii.At present, HDFC has a 48% stake in HDFC Life Insurance and 50% in HDFC Ergo, and 52.6% stake in HDFC MF.
About PSL Norms: Under the PSL norms, Indian banks are required to lend at least 40% of their total disbursal to the priority sector which comprises agriculture, micro and small enterprises, education, housing, export credit and advances
– SEBI Approves transfer of Controlling stake of HDFC AMC to HDFC Bank
On April 21, 2023, the Securities and Exchange Board of India (SEBI) approved the proposed change in ownership of HDFC Asset Management Company Limited (HDFC AMC), a subsidiary of HDFC Limited and the AMC of HDFC Mutual Fund (HDFC MF), to HDFC Bank as part of merging.
- SEBI instructed the HDFC AMC to ensure compliance with all other provisions of SEBI(Mutual Funds) Regulations, 1996 and circulars.
- This approval will enable the merger of HDFC Ltd into HDFC Bank.
Background:
i.In April 2022, HDFC Ltd proposed the amalgamation of HDFC Investments Limited and HDFC Holdings Limited with HDFC Ltd and the further merging of HDFC Ltd with HDFC Bank.
ii.Subsequently, the merging of HDFC Ltd with HDFC Bank will result in all the group companies becoming direct subsidiaries of HDFC Bank. Besides the bank, HDFC is the holding company for HDFC Life, HDFC General Insurance, HDFC Mutual Fund, HDFC Credila and HDFC Venture Capital. This amalgamation deal is valued at US$40 billion.
iii.Once the merging is effective, HDFC Bank will be 100% owned by public shareholders, and existing shareholders of HDFC Ltd will own 41% of the bank.
iv.HDFC Bank intends to complete its reverse merger with the parent HDFC by July 2023.
v.Every HDFC shareholder will get 42 shares of HDFC Bank for every 25 shares they hold.
Additional info:
i.HDFC Bank was allowed to continue holding its stake in HDFC Education and Development Services, which operates three education schools having 4,000 students, for a period of two years.
ii.Regarding HDFC Credila Financial Services, the higher education financier, which was having a book of over Rs 10,000 crore and owned fully by HDFC (at present), HDFC Bank was directed to reduce its holding to 10% in two years and stop onboarding new customers.
About HDFC Bank Ltd
MD & CEO – Sashidhar Jagdishan
Establishment – 1994
Headquarters – Mumbai, Maharashtra
Tagline – We Understand Your World
