On April 4, Housing Development Finance Corporation and HDFC Bank announced a mega merger, ending years of speculation. as planned, HDFC will acquire 41 percent stake in HDFC bank Through transformational mergers. President Deepak Parekh has called it a merger of equals. For every 25 shares held by HDFC shareholders, they will receive 42 shares of the bank. The merger created an entity that would have a market cap of Rs 12.8 lakh crore and a balance sheet of Rs 17.9 lakh crore.
The announcement came as a surprise to most analysts. The market expressed happiness over the decision.
In his first exclusive interaction with the media after the announcement, Deepak Parekh, a veteran banker who has built the reputed mortgage lender in four decades, spoke to Moneycontrol on April 5, where he explained why the company has now decided to merge with the bank. What are the challenges ahead on culture integration.
Edited excerpt:
The iconic HDFC brand will no longer exist…
We have to mix the culture and all our people are going to come to the bank. So, there will be some rubbing of the culture. Now we have to have a common culture. Now, the bank has to deal in housing loans which are very emotional, personal, family – they are all there. So we have to be very careful with all our customers.
How hard would that be?
Now, if you give a personal loan to someone who bets and loses, we have to be tough on them. Hence, it is felt because of not good bank culture. If I take a car loan and he runs away with the car, we have to get it back. So, the business of a bank and the business of mortgage finance have different emotional and emotional issues. The bank has to be tough.
Why did you choose to merge?
We had to keep a huge resource base with our development. The Indian debt market is not yet developed. It is not easy for NBFCs to raise large sums of money and the demand for the financial sector, home finance, home is increasing rapidly. Therefore, we also have to be careful that five years from now, we will be able to mobilize the necessary resources for disbursement. Look, today we are very comfortable, tomorrow we will be very comfortable, after two years we are very comfortable but what about the future as the business continues to grow? The demand for housing in India is not going to stop for the next 50 years.
So is this constraint as an NBFC the primary reason why HDFC chose to merge with the bank at this point?
The hurdle is that over the years the RBI has removed the intermediary between the bank and the NBFC; Coming up with the same NPA (Non-Performing Asset) classification of the bank removed indirectly, higher capital adequacy for us. There is a heavy burden on housing loans.
The regulator wants large NBFCs to become banks. What are your thoughts?
They have very clearly come out with a paper which says that big NBFCs should become banks. Then they are coming up with three layers of regulatory requirements for NBFCs – upper layer, middle layer, lower layer. Any person above Rs 50000 crore will be the upper layer; We are five lakh crore rupees. We are the tallest in the upper layer. And they have very clearly said that the monitoring, monitoring, regulation of upper level NBFCs will be done like a bank. So all these rules… NPA is the worst. I tell you. If a person has four months’ dues and pays two months’ installment, then under NHB (National Housing Bank) we have taken him out of NPA, as he is less than 90 days. Under the banking regulation, if he is in arrears for four months and if he pays for 3 months, he is still an NPA. We have assets as security. But still RBI brought this rule. That’s why RBI is going to regulate big NBFCs like banks.
Have the LCR rules affected you as well?
The big blow was the LCR, liquidity coverage ratio. So technically, the 30 days due, whether it is deposit maturity, whether it is loan repayment, bond repayments- all these should be kept in a separate bank account. So technically, that increases the cost significantly. So the main impetus for the regulatory changes was that it was very clear that RBI is concerned about large NBFCs after IL&FS and others. RBI wants regulation on par with banks (large NBFCs).
Do you think the regulator was doing injustice to companies like HDFC? After all, not every NBFC is IL&FS.
But, why has he done this? Because of bad experiences. Because of some black sheep in the family. There are many NBFCs which have closed down. They take retail and deposits and they don’t pay. As a regulator, you are answerable to Parliament. How IL&FS collapsed, how Srei Finney collapsed, how Dewan Housing collapsed, what phase Indiabulls is going through, the numbers of these small companies have been asked huge questions, hence the need to tighten the rules and It is not just RBI, it is all over the world.
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