Should you buy HDFC Bank after RBI’s clarification on merger plans?

The RBI clarification is in response to the bank’s request for a series of relaxations to speed up the merger process, which is expected to be made official by July this year.

For the first year, RBI calculated the Adjusted Net Bank Credit (ANBC) taking into account only one-third of the outstanding loans of HDFC Ltd as on the effective date of amalgamation to satisfy priority sector lending (PSL). allowed to do. Criteria. Over the next two years, HDFC Ltd. will look at the last two-thirds of its portfolio.

From the effective date of merger, HDFC Bank will have to follow the existing norms of Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR) and Liquidity Coverage Ratio (LCR) ratios without any change.

Following this news development, four brokerage houses are bullish on HDFC Bank stock and have recommended ‘Buy’ rating to it. On Monday, the stock started trading on a positive note but later declined, giving away a major part of the morning’s gains. On the technical front, analysts remain positive on the stock.

“The overall trend is positive but the stock is currently in a consolidation phase. Traders should maintain a positive bias, and use the dips to go long. 1,650 – 1,640 is the support zone while 1,730 is resistance,” said Rajesh Bhosale – Equity Technical & Derivatives Analyst, Angel One.

Additionally, prior to the effective date, the RBI has permitted HDFC Bank or HDFC Limited to increase its holdings in HDFC Life and HDFC Ergo to more than 50%. Currently, HDFC Limited holds 49.9% of HDFC ERGO and 48.7% of HDFC Life.

shares of HDFC Life Insurance Company Limited It jumped 7% more in Monday’s trading session. According to Bhosle, equity stock prices started with a big gap up, opened with strong volumes.

The stock was trading on a high volume of 17.4 Million with a price gain of 5.10% as per the trendline.

Let’s take a look at what all the four brokerages have to say about RBI’s important clarification for the merger.

ICICI Direct Research

The brokerage firm claims that the RBI clarification largely puts an end to the uncertainty regarding the modalities of the merger and hence is still positive. Further, it added that the liability management decision of grandfathering is dependent on RBI approval, which has to be sought on the Effective Date.

“HDFC Bank is expected to deliver over industry growth with around 2% in FY25E. We remain positive and maintain our ‘Buy’ rating on the Return on Assets (RoA) stock. We expect HDFC Bank to give FY25E ABV give a value of about 2.5 times post merger) and 155 for subsidiaries and revise our target price 2,050/share from 1,970 earlier,” the brokerage said.

Nuwama Institutional Equities

The brokerage claims that the street was not building up in anticipation of relaxation in PSL regulations by the RBI. CRR, SLR and LCR have not been reduced and neither was it expected. While the underlying asset for affordable housing may still be eligible for general category priority sector loans, HDFC’s infrastructure bonds will not automatically be classified as infrastructure bonds for HDFC Bank.

The mortgage loans offered by HDFC are based on PLR; However, post merger, the mapping may change to External Benchmark Lending Rate (EBLR)/ Marginal Cost of Lending Rate (MCLR) only with the consent of the client.

“While we expect near-term pressure on C, we maintain ‘Buy/Sleep’. It has achieved an incremental market share of 20.5% of system deposits in FY2023 against outstanding share of 10.5% Asset and deposit growth, not margin, will be the key earnings driver, the brokerage said in its report.

Motilal Oswal

The brokerage believes that easing PSL compliance benefits the bank as it lowers costs and supports profitability in the first few years post merger. Additionally, HDFC Life no longer has any major issues due to the approval to increase shareholding in subsidiaries beyond 50%, which will also guarantee total alignment between the interests of the bank and the life subsidiary.

“We believe that given the increased focus on raising liabilities, the requirement to meet SLR, CRR and LCR from the effective date of the merger will be manageable. We further believe that these moratoriums provide assurance that the merger will proceed as planned. is growing and will likely be finalized by the indicated timelines. Our strong ‘Buy’ recommendation on HDFC Bank stock remains unchanged and we maintain our target price 1,950,” the brokerage said.

Elara Securities (India) Private Limited

One of the top brokerage recommendations in the banking sector is HDFC Bank. The brokerage claims that due to the transitional nature of the merger and the unpredictability of the expenses, it is difficult to estimate the exact impact of the outcome of the merger.

“We have, in our estimates, taken into account the full impact of the PSL reduction in FY24. With this exemption, the PSL cost, if any, can be realized only in FY25. Thus, consequential changes in , we upgrade our FY24E earnings to 2%,” the brokerage said