HDFC Bank has requested the Reserve Bank of India for certain merger-related forbearances and is awaiting the final response, said HDFC Chairman Deepak Parekh.

“HDFC Bank has been in discussions with RBI seeking forbearance for certain assets, liabilities and investment in all subsidiaries, including HDFC ERGO. But, the merged entity is expected to have sufficient liquidity and alternatives available to meet the necessary liquidity and fund requirements,” Parekh said.

He was speaking at the extraordinary general meeting of the company convened by the NCLT to seek shareholders’ approval for the merger of HDFC with HDFC Bank. Shareholders of HDFC approved the merger later in the day.

At HDFC Bank’s EGM, also held on Friday, MD and CEO Shashidhar Jagdishan said the capital adequacy ratio of the merged bank is expected to increase by about 20-30 bps.

On the effective date of the merger, Parekh said currently the date as per initial approvals stands at June 2023.

“This will take about 8-10 months time from today, before the effective date is announced by the NCLT,” Jagdishan said.

Shareholding and investments

Parekh said all investments of HDFC, including YES Bank and Bandhan Bank, will be transferred to HDFC Bank as determined by the RBI, adding that all costs post the merger will be borne by the bank.

Shareholders of HDFC as on the record date, will be issued HDFC Bank’s shares according to the share exchange ratio, and foreign portfolio investors will become shareholders of the bank.

“We understand that foreign shareholdings in the merged entity would be within permissible limits. Foreign holding limit in HDFC Bank is 74 per cent,” he said

Jagdishan said the share allotment will happen on the effective date of merger, but the new shares to be allotted will take some to start trading.

“We need to separatise ISIN numbers and wait for the approvals of the exchanges, post which the shares that have been allotted will be allowed to trade,” he said, adding that the record date could be 2-3 days post allotment.

Merger underway

HDFC and HDFC Bank have constituted an integration committee and various sub-committees to ensure smooth integration of all business verticals as well as corporate functions, Parekh said adding that the management has identified 40 work streams wherein over 100 senior employees from each side are working towards proper integration.

Post the merger, the current mix of HDFC Bank’s CASA and term deposits may undergo a change, which may initially impact NIMs of the combined entity, but as HDFC’s higher cost of borrowing gets replaced, NIMs will revert to earlier level of the bank, Parekh said.

“Mortgage has a higher RoE and consumes less capital as risk weightages are lower. No additional capital will be required as both entities have adequate capital. Hence, we don’t expect any major impact,” he said.

On meeting priority sector lending targets, Parekh said that even if RBI does not grant forbearance, HDFC Bank will not fall short on day one of the merger, as per the joint financial statements. This is because computation of the limits is based on the credit exposure of the preceding year, giving HDFC Bank about 12 months to meet the requirements.

Operational integration

All HDFC employees, who are not past the age of superannuation of 60 years, will be incorporated into HDFC Bank at terms “not less favourable than which they were engaged in by HDFC”, Parekh said, adding that HDFC has 3,897 and HDFC Bank has 1,60,992 employees.

HDFC Bank Chairman Atanu Chakraborty, who will continue as the Chairman of the merged entity, said that there might be some changes in the board of HDFC Bank to incorporate the senior management of HDFC.

Jagdishan said he expects rationalisation or duplication from HDFC’s 508 branches and 39 hub locations to be “fairly small” and the bank would expect to absorb all of them. He added that all deposits of HDFC will be transferred to the bank at the same rate of interest and maturity.

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