The Reserve Bank of India has granted relief to HDFC Bank Ltd and Housing Development Cooperation Select to smooth out the merger between the two companies, slated to conclude by July, this year. The bank stated in an exchange statement that the Central Bank of India has given the bank permission to meet priority sector lending standards in a staggered manner over three years.
The loan book of an organisation is related to the requirements, which include lending to the weaker sectors of the economy. The remaining portion of the loan book would need to be satisfied over the course of the following two years, according to the statement from HDFC Bank. To keep a specific amount of cash reserve ratio, statutory liquidity ratio, and liquidity coverage ratio on the combined balance sheet from the start after the merger, HDFC Bank will need to abide by the rules.
As per the reports, earlier this week, the bank along with the housing financer raised funds to meet their requirements from the beginning.
Even though the bank will eventually need to abandon a few select ventures, investments and associates of HDFC will be permitted to remain as investments of the united HDFC Bank. However, the RBI stated that HDFC Bank or HDFC can raise their shares in HDFC Life Insurance Co Ltd HDFL.NS and HDFC ERGO General Insurance to greater over 50% before the merger closes. HDFC Bank has two years to sell its holdings in HDFC Education and Development Services and HDFC Credila Financial Services, respectively, and to cut them both to 10%.
Within six months after the merger, HDFC Bank must switch all of HDFC’s small-business and retail borrowers to an external benchmark, such as the repo rate, in accordance with bank-specific regulations.
In comparison to banks, housing financing businesses are more flexible when offering loans against shares. According to the notification, the RBI has given HDFC Bank permission to extend existing loans against shares in the HDFC portfolio until maturity.
According to the bank’s CFO Srinivasan Vaidyanathan, the amalgamated entity will clarify if HDFC’s borrowings, including those from banks, will be allowed to continue until maturity. While HDFC Bank is prohibited from borrowing from other banks, HDFC is permitted to do so as a non-bank lender from banks.
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