HDFC Bank Ltd is likely to raise at least ₹2.2 trillion from public deposits and corporate bonds, and an additional ₹50,000 crore from similar papers to meet capital requirements and other pre-requisites stipulated by the regulator for its merger with India’s largest mortgage lender and parent Housing Development Finance Corp. Ltd, two people directly familiar with the bank’s plan said.

Indian rules bar banks from having any borrowing on their balance sheet from any other bank, prompting HDFC Bank to raise funds to repay the loans taken by its home financier parent. HDFC Ltd, a non-banking financial company (NBFC), borrowed from other banks to lend to homebuyers. But, after the merger with HDFC Bank, such borrowings cannot remain on the bank’s balance sheet. Of around ₹5 trillion borrowings in HDFC Ltd’s books, at least ₹2.2 trillion are from various banks.

“This needs to be entirely paid off on the day the merger happens. This ₹2.2-2.3 trillion has to come from long-term public deposits (FDs, term deposits, etc.) and from bonds with tenures of more than three years,” stated Ashutosh Ok. Mishra, head of research-institutional fairness at Ashika Stock Broking.

In addition, HDFC Bank can have to raise an extra ₹50,000 crore to fund its SLR and different capital necessities, the folks stated on situation of anonymity. SLR is the minimal proportion of deposits a industrial financial institution should keep within the type of liquid money, gold or different securities.

“ ₹50,000 crore, too, has to be raised from long-term public deposits and bonds. This is why HDFC Bank has requested a rest in SLR and CAR (capital adequacy ratio) calculation. A interval of up to three years must be adequate for the merged entity to raise the full ₹2.7-2.8 trillion for paying off the borrowings present in HDFC Ltd’s books and adjust to the SLR requirement,” Mishra said.

“The rate of interest offered on bonds will decide the time HDFC Bank will take to raise the money for meeting SLR needs and pay off the borrowings of HDFC Ltd,” he added.

Emails despatched to spokespeople for HDFC Group and HDFC Bank didn’t elicit any response.

HDFC has written to the Reserve Bank of India in search of exemption from the SLR requirement and permitting the merged entity to adjust to the liquidity necessities in a phased method. However, the regulator remains to be to reply to the financial institution, the folks stated.

Banks want to keep an SLR of 18% always and have a uniform SLR of 25% of the full of their demand and time liabilities as of the final Friday of the second fortnight of a month, in accordance to the Banking Regulation Act, 1949.

To raise public deposits, HDFC Bank is quickly increasing its department community. The financial institution has added 725 branches since final yr, taking the full community power to 6,378.

“On the distribution enlargement (entrance), we added 36 branches throughout the quarter, and 250 extra are in numerous levels of readiness to be rolled out,” chief financial officer Srinivasan Vaidyanathan told investors on 21 July, after announcing the bank’s June quarter financials. HDFC Bank has deposits of over ₹16 trillion currently.

“HDFC Bank is looking at a total public deposit base of over ₹20 trillion immediately post the merger. Additionally, ₹1.5-2 trillion would be from bonds, a part of which will come from the fresh fundraising being planned for the merger,” stated one of many two folks cited above.

HDFC Bank has not too long ago determined to fund low-cost houses via the issuance of medium to long-term bonds. This could partly scale back the necessity for the financial institution to raise cash from public deposits to meet the regulatory necessities on liquidity and reserves.

The financial institution’s deposits grew 19.2% from a yr earlier to ₹16.04 trillion throughout the June quarter. Retail deposits elevated by roughly ₹50,000 crore within the quarter, up 19% from a yr earlier. The financial institution’s capital adequacy ratio is at 18.1%.

Around 20 years in the past, when ICICI Ltd merged with ICICI Bank Ltd, an exemption on SLR compliance was given by RBI.

The proposed merger of HDFC with HDFC Bank has raised SLR necessities because the steadiness sheet dimension of the merged entity might be a lot larger than what the standalone financial institution now has.

While asserting the merger on 4 April, HDFC Bank’s managing director Sashidhar Jagdishan stated: “We additionally plan to ramp up our deposit assortment drive within the run-up to the merger.”

The RBI has issued a no-objection certificate for the proposed amalgamation of HDFC and HDFC Bank. The Securities and Exchange Board of India (Sebi), too, has given its in-principle approval for a scheme of amalgamation of various HDFC Group entities as a part of the mega-merger.

HDFC Bank has also requested RBI to relax priority sector lending norms and grandfathering certain assets and liabilities. These are under consideration by the RBI.

After the completion of the merger, HDFC Ltd will acquire a 41% stake in HDFC Bank, and all subsidiaries of the housing financier will be owned by the latter. It will take about 12-18 months for the ongoing merger process to be completed.

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