Merger update: RBI permits HDFC Bank/HDFC to increase shareholding in insurance arms to over 50%

The Reserve Bank of India has allowed HDFC Bank/HDFC Ltd to increase shareholding in HDFC Life, HDFC ERGO to over 50%, said the lender on Friday.

RBI has allowed HDFC Bank Ltd and Housing Development Finance Corporation select regulatory relief to smooth out the merger between the two organisations, set to conclude by July this year, the lender said in a stock exchange filing on Friday.

RBI has permitted the bank to meet priority sector lending requirements in a staggered fashion over three years, the bank said in an exchange notification.

"Adjusted Net Bank Credit may be calculated considering one-third of the outstanding loans of HDFC Limited as on the Effective Date of the Amalgamation (“Effective Date”) for the first year. The remaining two-thirds of the portfolio of HDFC Limited shall be considered over a period of next two years equally," said HDFC Bank.

These requirements, which include lending to weaker segments of the economy, are linked to an organisation's loan book.

However, post the merger, HDFC Bank will need to comply with requirements to hold a certain level of cash reserve ratio, statutory liquidity ratio and liquidity coverage ratio on the entire merged balance sheet, right from the beginning.

"One time mapping of all borrowers of HDFC Limited would need to be done by HDFC Bank for benchmark and spreads. All retail, MSME and other floating rate loans sanctioned by HDFC Limited would be linked to appropriate benchmark within six months from the effective date," said HDFC Bank about the contours of the mega merger.