MC Exclusive | HDFC-HDFC Bank merger to lead to bigger growth opportunity; will not take executive role, says Keki Mistry

The merger of Housing Development Finance Corporation (HDFC) and HDFC Bank, expected to take effect from June-July, will lead to bigger growth opportunities for the combined entity, HDFC Vice Chairman and CEO, Keki Mistry told Moneycontrol in an exclusive interview on 10 March.

“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.

HDFC on April 4 said its board has approved the merger of its wholly-owned subsidiaries HDFC Investments Limited and HDFC Holdings Limited with HDFC Bank Limited. As part of the plan, HDFC will acquire 41 percent stake in HDFC Bank through the transformational merger.

Mistry said the lower regulatory costs for the merger at this point was one of the key reasons that led to the timing of the merger.

“It is not the vanishing regulatory arbitrage that led to the merger. We have time and again looked at the merger but the regulatory cost was high (earlier). Advantage of the merger was always there. Over the last 7-8 years, regulatory cost has come down for merger and benefits of the merger became stronger,” Mistry said.

Earlier, HDFC Chairman Deepak Parekh had cited the vanishing regulatory arbitrage as one of the reasons that led to the merger.

“Every new RBI policy entailed tightening of regulations for NBFCs,” Parekh told Moneycontrol in an exclusive interview on January 27 . “So, the flexibility and the light-touch regulation that an NBFC enjoyed was fast disappearing, and rightly so, because a number of NBFCs had collapsed and some had even taken public deposits,” the veteran banker said.

HDFC and HDFC Bank merger has been in the news for a while. In fact, back in 2015, Parekh had said his firm could consider a merger with HDFC Bank provided circumstances were in favour.

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. On its part, the RBI has been encouraging large NBFCs to convert into banks, after the shadow lending space was shaken by the IL&FS crisis in 2018.

Not to take any executive role in the bank

Mistry said he will not take any executive role in the bank but could look at joining the board.

“I will not take any executive role in the bank,” said Mistry in the interview.

Earlier, there were speculations that Mistry might take up an executive role in the merged entity.

Replying to a question on whether the company has identified the person to head the mortgage portfolio, Mistry said non decision has been taken so far. “It's still being worked out. We have an integration committee looking at this,” Mistry said.

In the interview, Mistry said the demand for housing loans is expected to remain strong gong ahead despite high interest rates environment. “There is a sustained demand for housing loans. The home loan penetration in India in the housing finance market is 11 percent. There is a huge growth potential and it will take time to reach 20 percent,” said Mistry.