The Reserve Bank of India (RBI) has given several relaxations to HDFC Bank to facilitate its merger with Housing Development Finance Corporation, but none on crucial reserve and liquidity ratios: the combined entity must adhere to them from day one.
Banks are mandated to lend 40% of their credit, as adjusted net bank credit (ANBC), to so-called priority sectors such as agriculture, housing and micro, small and medium enterprises (MSMEs). Is. ANBC is the net bank lending and investment by banks in non-SLR bonds. In an exchange notification, HDFC Bank said it was informed that the combined entity would have to comprise one-third of HDFC’s loan book for computing the priority sector lending (PSL) required at the end of the first year after the merger. The priority sector requirements on the remaining loan book of HDFC can be met over the next two years.
In a call with investors, Srinivasan Vaidyanathan, chief financial officer of HDFC Bank, expressed confidence about meeting this requirement. “Our priority will be to give priority sector lending through the organic route. We have set a target to reach 165,000 villages by March 2024 and 200,000 villages by March 2025. We need this kind of reach to meet that growth.
Analysts said the discount on PSL is a big positive for the bank.
“Considering that PSL requirements will start only in FY25, the cost of PSL will come down from 20 billion 5 billion, implementing a core PAT upgrade of 2%, Prabhudas Lilladher said in a report.
However, there is no relaxation on the timeline for meeting Cash Reserve Ratio (CRR), Liquidity Coverage Ratio (LCR) and Statutory Liquidity Ratio (SLR), and the merged entity will have to meet these ratios from inception. HDFC Bank and HDFC are planning to complete their merger by July.
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