RBI allows HDFC Bank to raise stake in insurance arms; liquidity compliance norms stay the same

This comes after the bank had written a letter to RBI regarding certain relaxations sought by HDFC Bank in relation to the proposed merger with HDFC.

On priority sector lending (PSL), the central bank said the adjusted net bank credit may be calculated considering one-third of the outstanding loans of HDFC as on the effective date of the amalgamation for the first year. The remaining two-thirds of the portfolio of HDFC shall be considered over a period of the next two years equally.

HDFC Bank missed its PSL target in the fiscal year 2021, which was attributed to the COVID-19 pandemic's impact on the economy. The bank has been making efforts to increase its lending to priority sectors, such as agriculture, micro, small, and medium enterprises (MSMEs), and housing.

Also, the RBI has permitted HDFC Bank to continue holding HDFC's stake in HDFC Education and Development Services Private Ltd, engaged in operating three education schools, for a period of two years from the effective date.

HDFC Credila Financial Services Ltd is subject to the shareholding being brought down to 10 percent within two years from the effective date and not onboarding new customers.

The letter given by RBI to the lender also said that one-time mapping of all borrowers of HDFC would need to be done by HDFC Bank for benchmark and spreads. All retail, MSME, and other floating rate loans sanctioned by HDFC would be linked to the appropriate benchmark within six months from the effective date.

The central bank said it has permitted loans against shares for promoter contributions or in excess of Rs 20 lakh to the individuals, to continue for its existing duration/maturity by HDFC.

Subsequent to the effective date, asset classification of accounts in the books of HDFC Bank will be as per the norms applicable to banks, the apex bank said to HDFC Bank.

Termed the biggest transaction in India's corporate history, HDFC Bank on April 4, 2022, agreed to take over the biggest domestic mortgage lender in a deal valued at about $40 billion, creating a financial services titan.

The deal has got in-principle approval from the stock exchanges, Reserve Bank of India (RBI), SEBI, Pension Fund Regulatory and Development Authority (PFRDA), and Competition Commission of India (CCI).

The proposed entity will have a combined asset base of around Rs 18 lakh crore. The merger is expected to be completed by the second or third quarter of FY24, subject to regulatory approvals.

Once the deal is effective, HDFC Bank will be 100 percent owned by public shareholders, and existing shareholders of HDFC will own 41 percent of the bank. Every HDFC shareholder will get 42 shares of HDFC Bank for every 25 shares held.

Following the merger, the combined balance sheet will be Rs 17.87 lakh crore and the net worth will be Rs 3.3 lakh crore, as of the December 2021 balance sheet.