” ₹2.2 to 2.3 trillion of HDFC Ltd’s loans are from various banks, which must be repaid on the first day of the merger. This will come from deposits and bonds. Other than that, at least ₹50,000 crore would also be collected from the deposits which will be used to meet the statutory liquidity ratio (SLR) and capital adequacy requirements (CAR),” the first person said.

Indian rules prohibit banks from having borrowings on their balance sheet from any other bank, prompting HDFC Bank to raise funds to repay loans taken out by its financial parent company. HDFC Ltd, a non-bank financial company (NBFC), borrowed from other banks to lend to home buyers. But, after the merger with HDFC Bank, these loans can no longer remain on the bank’s balance sheet. About ₹5 trillion loans on the books of HDFC Ltd, at least ₹2.2 trillion comes from various banks.

“This must be fully paid on the day of the merger. This ₹2.2 to 2.3 trillion must come from long-term public deposits (FDs, time deposits, etc.) and bonds with a term of more than three years,” said Ashutosh K. Mishra, head of institutional equity research at Ashika Stock Broking. .

In addition, HDFC Bank will have to raise an additional sum ₹50,000 crores to fund his SLR and other capital needs, the people said on condition of anonymity. SLR is the minimum percentage of deposits that a commercial bank must keep in the form of liquid cash, gold or other securities.

” ₹50,000 crore is also to be raised from long-term government deposits and bonds. This is why HDFC Bank requested a relaxation in the calculation of the SLR and the CAR (capital adequacy ratio). A period of up to three years should be sufficient for the merged entity to raise the total ₹2.7-2.8 trillion to repay existing borrowings on HDFC Ltd’s books and comply with the SLR requirement,” Mishra said.

“The interest rate offered on the bonds will decide how long it will take HDFC Bank to raise funds to meet SLR’s needs and repay HDFC Ltd’s borrowings,” he added.

Emails sent to spokespersons for HDFC Group and HDFC Bank elicited no response.

HDFC has written to the Reserve Bank of India requesting an exemption from the SLR requirement and allowing the merged entity to comply with the liquidity requirements in a phased manner. However, the regulator has yet to respond to the bank, the people said.

Banks must maintain an SLR of 18% at all times and have a uniform SLR of 25% of their total sight and term liabilities on the last Friday of the second half of a month, in accordance with the Banking Act 1949. banking regulations. .

To increase public deposits, HDFC Bank is rapidly expanding its branch network. The bank has added 725 branches since last year, bringing the total network strength to 6,378.

“In terms of distribution expansion (before), we added 36 branches during the quarter, and another 250 are in various stages of preparation to be rolled out,” Chief Financial Officer Srinivasan Vaidyanathan told investors on May 21. July, after announcing the bank’s June quarter financial results. HDFC Bank has deposits of more than ₹16 trillion currently.

“HDFC Bank envisions a total public deposit base of over ₹20 trillion immediately after the merger. In addition, ₹1,500 to 2,000 billion would come from bonds, part of which would come from the new fundraising planned for the merger,” said one of the two people quoted above.

HDFC Bank recently decided to finance low-cost housing by issuing medium and long-term bonds. This may partially reduce the need for the bank to raise funds from public deposits to meet regulatory liquidity and reserve requirements.

The bank’s deposits increased by 19.2% compared to the previous year for ₹16.04 trillion in the June quarter. Retail deposits increased by approximately ₹50,000 crore in the quarter, up 19% from a year earlier. The bank’s capital ratio is 18.1%.

About two decades ago, when ICICI Ltd merged with ICICI Bank Ltd, an exemption on SLR compliance was granted by RBI.

HDFC’s proposed merger with HDFC Bank has raised the SLR requirements, as the balance sheet size of the merged entity will be much larger than that of the standalone bank.

When announcing the merger on April 4, HDFC Bank Managing Director Sashidhar Jagdishan said, “We also plan to step up our deposit-raising campaign ahead of the merger.”

The RBI has issued a No Objection Certificate for the proposed merger of HDFC and HDFC Bank. The Securities and Exchange Board of India (Sebi) has also given its approval in principle to a plan to merge various HDFC group entities under the mega-merger.

HDFC Bank has also asked RBI to ease priority sector lending standards and preserve certain assets and liabilities. These are under consideration by the RBI.

After completion of the merger, HDFC Ltd will acquire a 41% stake in HDFC Bank, and all of the housing financier’s subsidiaries will be owned by the latter. It will take approximately 12 to 18 months for the ongoing merger process to be completed.

Gopika Gopakumar contributed to the story.

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