Top private sector lender HDFC Bank has said a merger with parent HDFC makes sense in long-run, but there is no proposal on the table and regulatory clarity is required to make such a deal “more beneficial”.
A possible merger between HDFC Bank and housing finance giant HDFC Ltd has been talked about for a long period and such a transaction can create the country’s second largest financial sector institution after state-run SBI.
Currently, HDFC Bank is the second largest lender in the private sector, although it ranks on the top in terms of market valuation ahead of its competitor ICICI Bank.
“Both in the view of HDFC and HDFC Bank, the merger in the long-run makes sense… But there is no proposal on the table at the moment,” HDFC Bank chief Aditya Puri told in an interview here.
“We have been saying the same thing about the merger for the past 20 years,” he added.
Mr Puri, who has been managing director of HDFC Bank for more than 20 years, said that “there are some regulatory issues which need to be resolved to make the merger more beneficial.”
While the talks of a possible merger between HDFC Bank and HDFC Ltd keep surfacing from time to time, the Reserve Bank’s move in July this year to allow banks to access long-term funding through bonds for infrastructure funding and affordable housing re-ignited such speculations.
Mr Puri, who has led mergers of Times Bank and Centurion Bank of Punjab with HDFC Bank, acknowledged that infrastructure bond issuance heightens the case for a merger with HDFC Ltd.
“There are some regulatory issues which need to be resolved to make the merger more beneficial. Partly, it has been resolved with the issuance of the circular on infra bonds, but there are a few more issues which we are in discussions with the regulators,” he said.
After the RBI issued these norms, HDFC Chairman Deepak Parekh had said that the boards of HDFC Bank and HDFC have not considered a merger, but they may look into it at an appropriate time “if it is necessary and beneficial to both entities”.
HDFC’s vice-chairman and CEO Keki Mistry has also said previously that a merger was possible ‘theoretically’ and it could be done at an appropriate time.
The two entities have a combined loan book size of Rs 5 trillion and assets of Rs 8 trillion. In terms of market capitalisation, HDFC group ranks second after Tatas and ahead of Reliance Industries group at close to Rs 4 trillion.