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HDFC Bank Ltd is awaiting the Reserve Bank of India’s response to a request that the regulator relax requirements to allow the bank to stay invested in parent Housing Development Finance Corp.’s (HDFC) subsidiaries after their proposed merger, Deepak Parekh, chairman of the mortgage lender, said.

“We have applied to RBI to allow all our subsidiaries to become the bank’s subsidiaries. We have not yet heard from them. Whichever they permit will become a subsidiary of the bank, and whichever they don’t, we will find a solution to disposing it of, or we may get a couple of years from RBI to divest some of our investments," Parekh said.

Parekh said the merger between India’s largest mortgage lender and the country’s largest private sector lender remains subject to certain final approvals despite getting an in-principle approval from RBI, and he would not be able to provide an exact date for the completion of the transaction. However, Parekh expects it to be effective by June.

“HDFC Bank has requested forbearance in respect of investments in all subsidiaries, including HDFC Ergo. Discussions are currently on with the RBI, and we are awaiting RBI’s response," Parekh said at the National Company Law Tribunal-convened shareholders meeting of HDFC on Friday.

In April, HDFC Bank said it would acquire HDFC, giving the bank a captive customer base to cross-sell products.

HDFC Bank also requested RBI more time to comply with cash reserve ratio (CRR), statutory liquidity ratio (SLR) and priority-sector lending requirements.

On Friday, Parekh said the merged entity is expected to have sufficient liquidity and alternatives available to meet necessary liquidity requirements.

All HDFC investments will be transferred to the bank after the merger in compliance with existing regulations, he said.

On priority sector lending requirements of the merged entity, Parekh said that even if RBI does not grant forbearance, compliance does not get triggered on the basis of the joint financial statements from day one of the merger.

“This is because, as per RBI circular, computation of priority sector targets and sub-targets achievement will be based on the higher of the average net banking credit or credit-equivalent amount of off-balance sheet exposures at the corresponding date of the preceding year," Parekh said, adding that HDFC Bank will have about 12 months to meet the requirements as on the effective date.

While HDFC had 3,897 employees, HDFC Bank had 162,992 employees as of 31 October. Parekh said that all employees of HDFC, as of the effective date, would be transferred to HDFC Bank on terms that are not less favourable than their current terms.

ABOUT THE AUTHOR

Shayan Ghosh

Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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