HDFC merges with HDFC Bank as regulatory arbitrage between Indian banks and shadow banks comes to an end. The nation’s largest mortgage lender now finds it makes more sense to access the cheap funds the nation’s largest private bank is raising in the form of customer deposits. At this point in the interest rate cycle, HDFC should find it easier to meet the liquidity requirements of banks in India. HDFC Bank, in turn, can use its heavier balance sheet to write bigger loan checks. Merger costs have been reduced by the recent streamlining of default reporting and provisioning rules for non-bank financial corporations and banks. And HDFC’s exposure to affordable housing and microcredit allows its loan portfolio to more easily accommodate HDFC Bank’s development finance requirements.
The merger expects to benefit from an investment round due after Indian companies expand, banks clean up a mountain of bad debt and a new insolvency mechanism frees up capital from zombie firms . This was the policy intent behind raising the regulatory bar for shadow banking, which bore an unusually large responsibility in financing India’s infrastructure because banks were unable to do so due to banking rules. ready. The banking sector in India is undergoing consolidation. Nothing makes it stand out better than this fusion.
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