HDFC Bank Awaiting RBI Response On Subsidiary Stake Forbearance, Says Deepak Parekh

Pointing out that the merger is subject to certain final approvals, Parekh said indicating the exact date would not be possible. However, it is expected to be effective by June 2023, he said. 

In April, HDFC Bank had announced it will take into its fold, promoter and mortgage lending behemoth Housing Development Finance Corp. (HDFC) in a deal that would make the bank more competitive and allow access to a captive customer base to cross sell its products.

“HDFC Bank has requested for 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 (NCLT)-convened equity shareholders meeting of HDFC on Friday.

On 4 April, Keki Mistry, chief executive of HDFC, had said that HDFC Bank has requested RBI for phased compliance cash reserve ratio (CRR), statutory liquidity ratio (SLR) and priority sector lending requirements. The bank, he had said, also requested RBI to allow the lender to hold equity in subsidiaries and associate companies of HDFC.

On Friday, Parekh said that necessary forbearance has been sought by the HDFC Bank on SLR and CRR and the merged entity is expected to have sufficient liquidity and alternatives available to meet necessary liquidity requirements.

“We are still in dialogue and awaiting RBI's response," he said. “We have applied to RBI to allow all our subsidiaries to become bank's subsidiaries. We have not yet heard from them. Whichever they permit, will become subsidiary of the bank and whichever they do not permit, we will find a solution to disposing it of or we may get couple of years from RBI in order to divest some of our investments."

All of 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 immediately on the basis of joint financial statements on 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 on 31 October. Parekh said that all employees of HDFC as on the effective date would be transferred to HDFC Bank on terms that are not less favorable than their current terms.