RBI refuses exceptions on CRR, SLR; gives some leeway on PSL, investments for merger: HDFC Bank

Mumbai, The country's largest private lender HDFC Bank on Thursday said the Reserve Bank has refused to make any exceptions on cash reserve ratio (CRR) and statutory liquidity ratio (SLR) requirements as sought by it ahead of the merger of mortgage financier parent HDFC with itself. The central bank has, however, allowed some leeways on the priority sector lending front, the city-headquartered bank said in a letter to the exchanges.

HDFC Bank and HDFC announced a USD 40 billion merger, the largest in Indian corporate history, last April and are awaiting the final regulatory go-ahead for the same. In pursuit of the same scheme, HDFC Bank sought relaxations on certain regulatory requirements from the regulator.

The bank informed the exchanges that it has received a letter from RBI with views on certain matters, while clarity on other requests is expected in due course.

"HDFC Bank shall continue to comply with extant requirements of CRR, SLR and LCR (liquidity coverage ratio) from the effective date (of merger) without exceptions," the lender said quoting the letter from RBI.

CRR is the percentage of deposits which a commercial bank like HDFC Bank has to park with the central bank for which it does not earn any interest, while SLR is a percentage of deposits which are mandated to be invested in government securities. A non-bank lender is exempt from the same requirements and HDFC Bank had sought leeways on compliance.

On PSL, the RBI has told the bank that adjusted net bank credit may be calculated considering one-third of the outstanding loans of HDFC as on the effective date of the amalgamation for the first year, and the remaining two-thirds of the portfolio of HDFC shall be considered over a period of next two years equally.

Under the PSL norms, commercial banks are required to devote over 40 per cent of their overall advances to areas marked as priority sectors for the emancipation of certain marginalized sections of society, whereas a non-bank lender like HDFC does not have to comply with such mandates.

The RBI has also allowed for the investments including subsidiaries and associates of HDFC to continue as investments of HDFC Bank, the letter said, adding HDFC Bank or HDFC can increase shareholding in HDFC Life Insurance Company and HDFC ERGO General Insurance Company to over 50 per cent prior to the effective date of the merger.

HDFC Bank can continue holding HDFC's stake in HDFC Education and Development Services, which operates three education schools, for a period of two years from the effective date and in HDFC Credila Financial Services provided the shareholding is brought down to 10 per cent within two years from the effective date and not onboarding new customers.

The bank will engage with the RBI for certain clarifications on the letter received on Thursday, and also approach RBI with the crystalised amounts of the liabilities as of the effective date, the letter said.

Speaking to analysts on a conference call last weekend, the bank had said that it expects the merger to get a go-ahead by July.