The mega merger of HDFC Bank with its largest shareholder housing loan company HDFC may have to face regulatory hurdles.
Analysts have expressed this apprehension. After the merger, HDFC Ltd will have 41 per cent stake in HDFC Bank.
The mega merger of HDFC Bank with its largest shareholder housing loan company HDFC may have to face regulatory hurdles.
The reason for this is that HDFC will also give stake to this bank in the insurance sector. Analysts have expressed this apprehension. The country’s largest private bank HDFC Bank has agreed to acquire its parent company HCFC and its all-stock.
After the merger, HDFC Ltd will have 41 per cent stake in HDFC Bank. HDFC Bank helped set up this housing loan company 28 years ago. After the merger, HDFC Bank will become a 100% public holding company. HDFC Ltd investors will get 42 shares of HDFC Bank for 25 shares.
The merger is expected to be completed by the third quarter of the financial year 2023-24. HDFC Bank CEO Shashidhar Jagadeesan will head the merged entity. Earlier it was reported that the Reserve Bank of India (RBI) wants the bank to reduce its stake in insurance companies.
HDFC Life and HDFC ERGO are amongst the leading private sector life and general insurance companies. Analysts say that the RBI will not be comfortable with handing over the operational responsibility of these insurance companies to HDFC Bank.
This is the reason why the management of HDFC Bank said on Monday that they have sought clarity from the regulator regarding its rules. Analysts believe it will not be easy.
An analyst with a domestic brokerage house said, “Keeping in mind that there is a need to merge several subsidiaries, there may be some regulatory hurdles, especially in the insurance business where the RBI is looking to increase its stake in banks. Not very comfortable.”
Negative impact on the balance sheet
According to analysts, a holding company structure may have to be created to bring the subsidiaries under HDFC Bank. However, it can have a negative impact on the balance sheet in the short term.
Brokerage firm Macquarie said on Tuesday that equations change if the holding company is brought into existence. Taxes increase as the cost increases in the form of stamp duty.
