hdfc: ET View: HDFC merger means consolidation in Indian private banking sector

HDFC merges with HDFC Bank as regulatory arbitrage between Indian banks and shadow banks ends. The country’s largest mortgage lender now finds it more sensible to access the cheap funds that the country’s largest private bank is raising as customer deposits. At this point in the interest rate cycle, HDFC should find it easier to comply with the liquidity requirements for banks in India. HDFC Bank, in turn, can use its stronger balance sheet to write larger loan checks. The cost of the merger was reduced by the recent tightening of reporting and arrears deferral requirements for non-bank financial firms and banks. And HDFC’s commitment to affordable housing and microcredit makes it easier for its loan book to meet HDFC Bank’s development financing requirements.

The merger is expected to benefit from an investment boost that has come after Indian companies deleveraged, banks rehabilitated a mountain of bad loans and a new bankruptcy mechanism freed capital from zombie companies. This was the policy intention behind raising the regulatory bar for shadow banks, which bore an unusually large responsibility for financing India’s infrastructure because banks were unable to do so due to lending rules. Banking in India is in consolidation. Nothing says it more clearly than this fusion. hdfc: ET View: HDFC merger means consolidation in Indian private banking sector

Russell Falcon

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