Exclusive| HDFC's 90% of short-term loans to corporates, realtors matured ahead of merger

HDFC to complete its merger with HDFC Bank by July

Mortgage lending major Housing Development Finance Corporation's  (HDFC) 90 percent of short-term loans extended to certain corporations and real estate dealers have matured ahead of the merger with HDFC Bank as these loans are not permissible under the banking business rules of the Reserve Bank of India (RBI), said a person aware of the development.

HDFC is set to merge with HDFC Bank by July-August 2023, and the merged entity will be known as HDFC Bank.

The RBI has, however, allowed HDFC to carry forward some of these short-term loans to HDFC Bank, after the merger process.

What does this mean?

Out of HDFC Ltd’s total short-term loans worth around Rs 10,000 crore, largely given to corporates and real-estate dealers, 10 percent or Rs 1,000 crore, will be allowed to be passed on to HDFC Bank, sources said.

Also read: HDFC Bank asks parent to cut exposure to certain loans before merger

“Around 90 percent or Rs 9,000 crore worth of our short-term loans have matured and the rest, of approximately Rs 1,000 crore, will be carried forward after our merger with HDFC Bank,” said a person aware of the development.

“These loans will mature in some time after our merger with HDFC Bank and the size of the portfolio is very small. Hence, the central bank has allowed us to keep those loans,” the person added.

Emails to the bank and the RBI seeking response to this report remained unanswered till the time of filing this copy.

Also read: HDFC to complete its merger with HDFC Bank by July

On June 9, 2022, Moneycontrol was the first to report that HDFC Bank is said to have asked its parent to cut exposure to a certain category of loans that are not permitted for banks under the RBI regulations.

The mega merger

HDFC and HDFC Bank announced the decision to merge on April 4, 2022. As per the plan, HDFC will acquire a 41 percent stake in HDFC Bank through the merger.

In fact, back in 2015, Deepak Parekh, Chairman, HDFC Ltd, said his firm could consider a merger with HDFC Bank, if circumstances were favourable. But the wait for the merger got longer with the parent putting the idea on the backburner. Parekh had said that the merger makes sense, provided there is no loss of value for shareholders.

Also read: HDFC Bank to take No. 1 slot in home loan market after HDFC merger

Sashidhar Jagdishan, Managing Director, HDFC Bank, on an analyst call on May 24 said that the merger is only about a month away.

“It's now just another four or five weeks before the big day that is going to be happening,” Jagdishan said.

On March 10, in an exclusive interview with Moneycontrol, HDFC Vice Chairman and Chief Executive Officer (CEO) Keki Mistry said that the merger will lead to bigger growth opportunities for the combined entity.

“Gradually, the objective is to expand housing loans from more and more branches of the bank. The growth opportunity on housing loans will be bigger in HDFC Bank (the combined entity) than HDFC,” said Mistry.

Once the deal comes into force, HDFC Bank will be 100 percent owned by public shareholders, and existing shareholders of HDFC will own 41 percent of the bank.

With the parent finally joining up with the bank, the resultant entity will emerge as a powerhouse in the Indian banking industry.