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Motilal Oswal Report
HDFC Bank Ltd. has reported that Reserve Bank of India has provided some key forbearances with respect to the ongoing merger process between HDFC Bank and Housing Development Finance Corporation Ltd. The regulator’s decision is still pending on certain other matters. Below are the key highlights:
Priority sector lending requirement to be met in a staggered manner – a key positive
RBI has allowed calculating the adjusted net bank credit for meeting the PSL requirement, by considering only 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 the next two years.
CRR, SLR, and LCR requirement to be met from Day 1; seems manageable
HDFC Bank shall continue to comply with the extant requirements of cash reserve ratio (4.5% of NDTL), statutory liquidity ratio (18% of NDTL), and liquidity coverage ratio ratio from the effective date of merger without any exceptions. Both the bank and HDFC has been increasing the liquidity buffer on the balance sheet and we believe that the bank will be able to broadly meet these requirements without any challenge.
Allowed to raise stake in insurance subs to more than 50%
Significant positive RBI has permitted HDFC Bank or HDFC to increase the shareholding to more than 50% in both HDFC Life Insurance Company Ltd. and HDFC ERGO, prior to the effective date. HDFC currently holds 48.7% in HDFC Life and 49.9% in HDFC ERGO. We believe this removes a key overhang on HDFC Life and could enable an additional buying of Rs 22 billion for HDFC Life. Further, investments of HDFC are allowed to continue as investments of HDFC Bank.
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