HDFC merger may not need CRR-SLR forbearance: Experts

HDFC Bank is well prepared to meet reserve ratio requirements post its merger with its parent and it may not need regulatory forbearance on that count, according to banking sector experts.

Housing Development Finance Corporation (HDFC) carried an average liquidity of Rs 46,000 crore through the year ended March 2022. According to some estimates, HDFC Bank currently holds government securities worth 29% of its deposit base, against the statutory liquidity ratio (SLR) requirement of 18%.

Even though HDFC Bank has asked for relaxation on SLR compliance, it may not really need it, said R Gandhi, former deputy governor, Reserve Bank of India (RBI). “Their G-Sec investments are roughly 29% as a share of deposits today. There should not be a problem for the combined balance sheet because the current SLR requirement is 18%. So, there is ample room for them even if forbearance is not granted,” Gandhi said.

The RBI has issued a no-objection certificate for the proposed amalgamation of HDFC and HDFC Bank. It is not immediately clear if the central bank has allowed the merged entity to comply with cash reserve ratio (CRR) and SLR requirements.

In a report dated July 6, Gaurav Jani and Palak Shah, analysts at Prabhudas Lilladher, said HDFC already has sufficient cash on its balance sheet to make up CRR. “Additional CRR/SLR for HDFC Bank merged may not be required, since HDFC Ltd has adequate cash for CRR, while HDFC Bank may carry excess SLR to serve overall SLR needs,” the report said.

Gandhi observed that a deal of this nature is quite rare, so there is no precedent for it. The only proposal of a similar kind the RBI had received was for the takeover of Lakshmi Vilas Bank by Indiabulls Housing Finance. The proposal was turned down by the regulator in 2019.

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