Rule harmonisation between NBFCs & banks, decreasing regulatory arbitrage led to merger, says HDFC chairman Deepak Parekh

HDFC chairman Deepak Parekh on Monday said harmonisation of rules between banks and non-banks which reduces the regulatory arbitrage was one of the key factors which influenced the decision for merger between the largest home financier and HDFC Bank.

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Parekh, who said the merger discussions have happened over the last three weeks, noted that requirements like non performing asset recognition being at par and size-based regulations for non-bank finance companies are among the changes in landscape.

Addressing a press conference after the surprise announcement earlier in the day, Parekh said the last three years have seen harmonisation in the regulations which reduce the "regulatory arbitrage" of running a separate home finance company.

He said being an housing finance company, HDFC does not have priority sector loans mandate, and is not required to comply with statutory liquidity ratio or cash reserve ratio mandates for its liabilities.

Therefore, an application for some leeway, where the RBI can grant time for those parts of the assets and liabilities to match up has been made to the central bank, he said.

Parekh said he is confident that the regulators will approve the merger scheme announced earlier in the day.

Terming the merger as one of equals, he said the amalgamation will take between 12-18 months and added that it will not impact employees of HDFC, which is set to be merged into HDFC Bank.

The combined balance sheet of the merged entity will be Rs 17.87 lakh crore and the net worth will be Rs 3.3 lakh crore, Parekh said.