HDFC-HDFC Bank Merger: RBI Grants No Exemptions On CRR, SLR Requirements

The Reserve Bank of India has not granted HDFC Bank Ltd. any exemptions on requirements surrounding the bank's cash reserve ratio, statutory liquidity ratio, and liquidity coverage ratio for its merger with HDFC Ltd.

HDFC Bank will, therefore, continue to comply with the extant requirements of CRR, SLR, and LCR from the merger's effective date without exceptions, according to a Friday exchange filing by the bank.

"We normally carry excess on those," Srinivasan Vaidyanathan, chief financial officer at HDFC Bank, said in a conference call regarding the update on Friday. HDFC Bank's LCR stands at 116% and its SLR is at 24-25%, Vaidyanathan said. All banks are required to hold a CRR of 4.5% as per RBI rules.

The final requirement around these ratios will also be determined by HDFC's financial results for the final quarter of FY23, Vaidyanathan said.

Since HDFC Bank is already carrying excess SLR and LCR, the lack of an exemption should not be an issue, Ashutosh Mishra, lead banking analyst at Ashika Broking, told BQ Prime.

This update regarding the ratios was among the clarifications shared with HDFC Bank by the RBI related to its merger with HDFC.

Other clarifications given to HDFC Bank pertain to the following items:

The RBI has said that HDFC Bank may calculate net bank credit considering only one-third of the outstanding loans of HDFC as of the effective date of the amalgamation for the first year.

The remaining two-thirds of the portfolio of HDFC shall be considered over the next two years equally.

"They have got a major relaxation on this," Mishra said. The relaxation comes as a net positive for the bank, as it will grant it a total of four years to meet the priority sector lending requirement. If a bank is unable to meet this requirement, it is required to invest in certain instruments to meet it, which in turn can put downward pressure on net interest margins.

"It is relaxed," Vaidyanathan said, referring to the PSL exemption granted by the RBI.

The merged entity's trajectory towards meeting the requirements may involve a set of tools and measures, but the bank's focus will be on organic growth, he added. "There is no one kind of straitjacketed model for this," Vaidyanathan said.

Investments, including those of subsidiaries and associates of HDFC, are allowed to continue as investments of HDFC Bank.

The RBI has also permitted HDFC Bank or HDFC to increase the shareholding to more than 50% in HDFC Life Insurance Co. and HDFC ERGO General Insurance Co. ahead of the merger's effective date.

The RBI has also permitted HDFC to hold its stake in HDFC Education and Development Services for a period of two years from the effective date. Similarly, HDFC can hold its stake in HDFC Credila Financial Services Ltd., subject to the shareholding being brought down to 10% within two years.

HDFC Bank will also be required to do a one-time mapping of all HDFC borrowers for benchmarks and spreads.

All retail, MSME, and other floating rate loans sanctioned by HDFC Limited would also need to be linked to an appropriate benchmark within six months from the effective date.

The bank will follow a six month timeline to do this assessment after the merger, Vaidyanathan said. Following the assessment, HDFC Bank will make fresh offers to customers who will then have a choice to opt-in for the new market benchmark linked interest rates.

"The rate can't be at a detriment for the customer. Our target will be to maintain that relationship and grow it," Vaidyanathan said.

After the merger's effective date, the asset classification of accounts on the books of HDFC Bank will be according to the norms applicable to banks.

Based on the list submitted by HDFC, the RBI has permitted loans against shares for promoter contributions in excess of Rs 20 lakh to individuals to continue for their existing duration or maturity.

HDFC Bank will approach the RBI with the crystallised amounts of the liabilities as of the effective date.

Shares of HDFC Bank closed flat on Friday, with shares changing hands at Rs 1,672 apiece, as compared with the benchmark Nifty Bank index, which closed 0.36% down for the day.