RBI approves proposed corporate structure

The Reserve Bank of India’s “no objection” to the plan of arrangement between Housing Development Finance Corp. ltd. and HDFC Bank Ltd. ensured that no holding company structure will need to be created to house the merged entity.

According to a person with direct knowledge of the matter, the banking regulator, in its letter on Monday, said the proposed plan of arrangement could proceed as is. However, the regulator also said that after the merger, the entity would have to comply with all applicable regulations.

The scheme of arrangement proposed a structure in which HDFC Investments Ltd. and HDFC Holdings Ltd. are merged with HDFC, then HDFC is merged with HDFC Bank.

“This implies that the RBI is in agreement to merge the above companies into HDFC Bank without the need to set up a holding company. The structure remains simple, removing a major overhang, in our view,” Macquarie analysts Suresh Ganapathy said. and Param Subramanian in a report on Tuesday.

With the “no objection” from the banking regulator, HDFC and HDFC Bank can now file the plan of arrangement with the National Company Law Tribunal for final approval, the person quoted above said. Apart from the court, the program must be approved by the Indian Competition Commission, the Securities and Exchange Board of India and the shareholders of the two companies.

Macquarie analysts say approvals could still take up to 12 more months.

The RBI, however, has yet to respond to HDFC’s requests for additional time to meet the statutory liquidity ratio, cash reserve ratio and priority sector lending requirements.

Similarly, the request to increase the sponsor’s stake in HDFC Life by 2.2% and retain HDB Financial as a separate lending arm has yet to be addressed by the RBI. For this, the regulator will respond with a separate communication, said the person quoted above.

HDFC Bank declined to comment on queries sent on Tuesday. HDFC and RBI did not respond to questions.

Analysts had previously estimated that the cost of maintaining SLR and CRR requirements on HDFC’s book could amount to more than Rs 1 lakh crore.

Similarly, the merged entity will need to ensure priority sector requirements are met on HDFC’s Rs 6-lakh-crore loan portfolio. HDFC and HDFC Bank had requested additional time from the RBI to comply.

“The SLR and CRR requirements should not be a drag. I think both institutions have enough excess, which could qualify for this,” said Sashidhar Jagdishan, Managing Director and Managing Director of HDFC Bank, announcing the merger to the press in April. 4.

“Nevertheless, of course, this is only a point in time. Over the next 18 months, assuming that’s how long it will take for regulatory approvals to be obtained, both institutions will grow , so the requirements will be greater,” Jagdishan said. said.