Merger with HDFC makes sense but no proposal on table: Puri

Private sector lender HDFC Bank has said a merger with parent Housing Development Finance Corporation (HDFC) makes sense in the long term. 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 the housing finance giant has been talked about for a long time. Such a transaction can create the country’s second largest financial sector institution, after State Bank of India.

Currently, HDFC Bank is the second largest lender in the private sector. It ranks on top in market valuation, ahead of ICICI Bank.

“We have been saying the same thing about the merger for 20 years,” HDFC Bank chief Aditya Puri said.

While talk of a possible merger keep surfacing, the Reserve Bank of India (RBI)’s move in July to allow banks to access long-term funding through bonds for infrastructure funding and affordable housing reignited such speculations.

Puri, who has led mergers of Times Bank and Centurion Bank of Punjab with HDFC Bank, said 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 in which we are in discussion with the regulators,” he said.

Following a Union Budget announcement, RBI has put in place a new set of norms for infrastructure loans, to allow these to be funded through long-term bonds. Banks do not need to set aside reserve requirements on these loans. After RBI issued these norms, HDFC Chairman Deepak Parekh had said the boards of HDFC Bank and HDFC have not considered a merger. They might look into it at an appropriate time “if it is necessary and beneficial to both entities”.

HDFC Vice-Chairman and Chief Executive Officer Keki Mistry has also previously said a merger was possible “theoretically” and 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 market capitalisation, the HDFC group ranks second after the Tatas and ahead of the Reliance Industries group, at close to Rs 4 trillion.

HDFC Bank

State Bank of India

ICICI Bank