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HDFC Bank asks parent to cut exposure to certain loans before merger

The largest private sector lender in India, HDFC Bank is said to have asked the parent Housing Development Corporation (HDFC) company to cut off a certain loan category that is not permitted for banks under the Reserve Bank of India (RBI) regulations.

This is mostly short -term loans that include certain company loans and loans to developers. It is estimated that the value of this loan will be around 20,000-25,000 crores in the current HDFC book, which will be extinguished for the next few quarters.

Even then, it is estimated that HDFC will have less than RS 10,000 Crore loans like that in their books before the merger.

The bank has asked HDFC to reduce the exposure of all loans that are not in accordance with RBI rules for banks. They have time to do it in the next 15 months before the merger will take effect, “said someone who is familiar with the development.

The person refused to be named by quoting the sensitivity of the problem. HDFC Bank does not respond to the queue from moneycontrol about this problem.

HDFC and HDFC Bank announced the decision to join April 4. As planned, HDFC will acquire 41 percent of shares in HDFC Bank through mergers.

Chairman of HDFC Deepak Parekh called him an equal merger. Every 25 shares held by HDFC shareholders will take 42 bank shares. The merger will create an entity that will have a market capitalization of RS 12.8 Lakh Crore and the RS Balance Sheet 17.9 Lakh Crores.

The announcement was surprising to most analysts. The market supports the decision.In an exclusive conversation with the media after the announcement, Parekh, a veteran banker who built iconic hypotek lenders for four decades, explained to Moneycontrol on April 5 why the company decided to join the bank and the challenges of cultural integration.

HDFC is the largest hypotek lender in India, while HDFC Bank is the largest private lender in terms of assets. The bank, however, only has a relatively small presence in the housing loan market compared to rivals.

The combination of HDFC-HDFC banks is expected in the second or third quarter of FY24. HDFC also said the proposed transaction would allow HDFC Bank to build its housing loan portfolio and increase its customer base.

The merging of HDFC and HDFC banks has been a temporary news. In fact, in 2015, Parekh said his company could consider mergers with HDFC banks as long as they supported. But, waiting for a longer merger with parents put ideas in the backburner. Parekh said that the merger made sense as long as there was no loss of value for shareholders.

With parents finally joining a bank, the resulting entity will emerge as a power plant in the Indian banking industry.

HDFC is waiting for a guideline for the route for the future to merge Mega with HDFC Bank and requires shareholder confidence and support “more than before” at this intersection, Parekh said in the company’s annual report.

We have at length, have articulated the reasons for proposed mergers, who know the potential for future country growth, a macro environment that develops and changes in regulatory architecture,” he added.

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