HDFC-HDFC Bank merger: Ready to form a holding company if RBI asks, HDFC Bank MD Sashidhar Jagdishan says

HDFC Bank Ltd's Managing Director Sashidhar Jagdishan has said that the bank was ready to form a holding company for the merger or after the merger or with Housing Development Finance Corporation Limited HDFC, if there is a need.

The objective of forming a holding company is to bring all subsidiaries under one umbrella. 

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The above news was reported by news agency 'Cogencis'.

Jagdishan said that if the Reserve Bank of India (RBI) insisted with its need for making a holding company, then the bank was ready to go with the demand from the banking regulator.   

 The MD also said that there will be technological integration and there are not many complications in the merger process. 

The MD further said that the capital base will be good and there will be no further requirement to raise capital. 

The cost of funds will also come down, he said and Cogencis reported.

Also Read: HDFC, HDFC Bank merger: 9 reasons & rationales that prompted this amalgamation—Expert decodes

The RBI has also given its approval on the grand fathering of HDFC's liabilities    

As part of the merger between HDFC and HDFC Bank, as many as 42 shares of HDFC Bank would be given for every 25 shares of HDFC Ltd.  

Post-merger, HDFC Bank will be 100% owned by public shareholders, and existing shareholders of HDFC Ltd will own a 41 per cent stake in the bank. Since the shareholding of HDFC Limited is regarded as an FII investment, the extinguishing would lead to the opening up of 7-8% headroom for FII investors in HDFC Bank.  

The merger is subject to regulatory and other approvals and could take 12-18 months to complete, it said  

Cross-sell opportunities and other synergies

  -About 70% of HDFC Limited customers do not bank with HDFC Bank, indicating a significant opportunity.  

-About 80% of HDFC Bank customers do not have mortgages, indicating low penetration.  

-The friction that exists currently between sanction and disbursal will go away.  

-There would also be opportunities to sell life insurance and non-life insurance products.  

-There would be other synergies for the combined entity.  

CRR SLR requirement    

The combined CRR and SLR requirement of 22% for banks is less onerous now.    

HDFC Limited has Rs 800bn worth of non-convertible bonds, which, due to affordable housing status, would not attract CRR CLR requirement.    

Due to a lower interest rate environment, the negative carry due to raising funds for CRR SLR requirement is lower today than it was before.  

The share of HDFC Banks in HDFC Life will increase to 48 per cent post the completion of the transaction. However, according to RBI regulations, the prescribed share can be either be less than 30 per cent or more than 50 per cent. To comply with the RBI regulations, Padalkar said that HDFC Limited and HDFC Banks want to stretch the 48 per cent to 50 per cent.

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