BackHDFC, HDFC Bank merger makes sense in the long run: Deepak Parekh
Parekh said it makes sense to merge in the long run provided there is no loss of value for shareholders of both entities
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Mumbai: Deepak Parekh, chairman of Housing Development Finance Corp. Ltd said his firm could consider a merger with HDFC Bank Ltd “provided circumstances are in favour" of such a deal.
“It makes sense to merge in the long run provided there is no loss of value for shareholders of both the entities. Having said that, the bank has recently sold shares and there was nothing mentioned in the prospectus (about a merger) so it will not be ethical for us to do it now, at least not in 2015," Parekh said on Monday, on the sidelines of the Kotak Institutional Equities Global Investor Conference Millenium Makers of India.
HDFC is the promoter of HDFC Bank but did not participate in the bank’s ₹ 10,000 crore share sale last week, said Parekh, suggesting that HDFC would have seen a marginal dilution in its shareholding in the bank. Parekh, however, said he had no plans to reduce stake in HDFC Bank.
“We did not participate because it would have taken a lot of time to get the approvals as a promoter and the issue happened in a very short time," Parekh said.
HDFC Bank started the share sale on the same day it received a formal approval from the Foreign Investment Promotion Board (FIPB) to increase foreign holding in the firm to 74%.
Parekh also warned against the rise of non-banking financial companies (NBFCs) offering high interest rate loans to builders for buying land.
“Mushrooming of NBFCs is not good for India. They are offering loans at 20%-25% and they are thriving because the RBI does not allow us to lend for land, which means builders have to borrow from them at high interest which increases the cost of housing," said Parekh.
He added that the restriction on banks financing purchase of land was put in place about 15 years ago when there was a bubble in the real estate sector.
“Now, that is no longer the case; so, it does not make sense," Parekh said.
Separately, Parekh said that he is optimistic about the Indian economy in the long run and added that the Narendra Modi-led government’s initiatives will help business.
“This government means business. I think we have a strong government with right intent. I don’t expect (a jump to) 10% growth in GDP in one year. I expect 1% growth every year. India is a very large country. In five years, I expect 8-9% growth," said Parekh, adding that the fall in the global crude oil prices is an opportunity for India.
Parekh, however, said that economic growth has to come from states.
“Growth happens in states and not in the centre. Well-run states with dynamic CMs will do much better. You will see BJP states do well because they will be directed from the centre," Parekh said.
He added that the government will have to “bite the bullet" in terms of their stake in public sector banks.
“I think government has a number of options. Once the government brings their stake to 51% in PSU banks, they can issues shares with no voting rights. Shares with voting rights can be issued at discount."
“They can go down to 40% in the next three years and still have the status and control of a single largest shareholder," Parekh said.
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