Deepak Parekh Exclusive Interview | HDFC and HDFC Bank Need to Have a Common Culture

On April 4, Housing Development Finance Corporation and HDFC Bank introduced a mega merger ending speculations that stretched over years. As per the plan, HDFC will purchase 41 p.c stake in HDFC Bank by way of the transformational merger. Chairman Deepak Parekh calls it a merger of equals. Every 25 shares held by HDFC shareholders will fetch them 42 shares of the financial institution. The merger created an entity that may have a market-cap of Rs 12.8 lakh crore and a stability sheet of Rs 17.9 lakh crores.

The announcement got here as a shock to most analysts. Markets cheered the choice.

In his first unique dialog with the media after the announcement, Deepak Parekh, the veteran banker who constructed the long-lasting mortgage lender over 4 many years spoke to Moneycontrol on April 5 the place he defined why the corporate determined to merge with the financial institution now and what are the challenges forward on tradition integration.

Edited excerpts:

The iconic HDFC model will not exist…

We should merge the tradition and all our individuals are going to be within the financial institution. So, some rubbing off of the tradition will occur. Now, we should have a typical tradition. Now, the financial institution should deal in housing loans which could be very emotional, private, household — all these are there. So we’ve to be very cautious with all our prospects.

How powerful shall be that?

Now, if you happen to give a private mortgage to somebody who speculates and loses, we’ve to be powerful on them. Therefore, the sensation goes because the financial institution tradition just isn’t good. If I take a automobile mortgage and he runs away with the automobile, we’ve to repossess. So, the enterprise of financial institution and the enterprise of mortgage finance has totally different sentimental and emotional problem. The financial institution needs to be more durable.

Why did you select to merge?

We needed to have a bigger base of assets with our progress. Indian debt market just isn’t developed but. For NBFCs to boost giant sums of cash just isn’t straightforward and monetary sector, residence finance, residence demand is growing by leaps and bounds. So, we additionally should watch out that we can elevate the assets we want for disbursements 5 years from now. See, at present we’re very snug, tomorrow we shall be very snug, two years later we’re very snug however what concerning the future because the enterprise retains rising? Housing demand just isn’t going to cease in India for subsequent 50 years.

So is that this constraint as an NBFC the first purpose HDFC selected to merge with the financial institution at this level?

The constraint is that the RBI, over the previous few years, eliminated the arbitrage between a financial institution and an NBFC; not directly eliminated by popping out with NPA (non-performing property) classification the identical because the financial institution, larger capital adequacy for us. There is larger weightage on housing loans.

The regulator needs large NBFCs to turn out to be banks. What are your ideas?

They have come out with a paper very clearly saying giant NBFCs should turn out to be banks. Then they’re coming with three layers of regulatory necessities for NBFCs — higher layer, center layer, decrease layer. Anyone above Rs50000 crore asset base shall be higher layer; we’re 5 lakh crore rupees. We are the best within the higher layer. And they’ve very clearly stated that the higher layer NBFCs shall be monitored, inspected, regulated akin to a financial institution. So all these rules…NPAs is the worst. I let you know. If an individual is 4 months in arrears and he pays two months set up, below NHB (National Housing Bank) we took him out of NPA, as a result of he’s beneath 90 days. Under banking regulation, if he’s 4 months arrear and if he pays 3 months, he’s nonetheless an NPA. We have property as safety. But nonetheless RBI introduced these rules. So the RBI goes to control large NBFCs just like the banks.

Have LCR guidelines impacted you too?

The large blow was LCR, Liquidity protection ratio. So technically, 30-days excellent, whether or not it’s deposit maturity, whether or not it’s mortgage reimbursement, bond reimbursement—all of that needs to be stored in a separate checking account. So technically, that will increase the price considerably. So the primary motivation of the regulatory modifications was that it was very clear that the RBI is anxious about giant NBFCs after IL&FS and others. The RBI needs regulation of (giant NBFCs) much like banks.

Do you assume the regulator was unfair to the likes of HDFC? Not each NBFC is an IL&FS in spite of everything.

But, why have they performed it? Because of unhealthy experiences. Because of some black sheeps within the household. There are so many NBFCs which have run down. They take retail and deposits and so they do not pay. As the regulator, you might be accountable to the Parliament. There are enormous questions requested on how IL&FS collapsed, how Srei Finane collapsed , how Dewan Housing Collapsed, what Indiabulls goes by way of..the variety of these small corporations…so the rules should be tighter and it isn’t simply the RBI, it’s all around the world.

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