HDFC Bank Ltd, India’s largest private sector lender, has received regulatory relief from the Reserve Bank of India (RBI) ahead of its merger with HDFC, according to a regulatory filing on April 21. Analysts suggest that this will have a positive impact on the bank’s stock.
The RBI has allowed HDFC Bank to calculate the Adjusted Net Bank Credit (for PSL) considering only one-third of HDFC’s outstanding loans as of the effective date of the amalgamation for the first year, with the remaining two-thirds to be considered equally over the next two years.
This means that the cost of Priority Sector Lending (PSL) for HDFC Bank would reduce significantly, from Rs 20 billion to Rs 5 billion, leading to a core PAT upgrade of 2 percent.
Under RBI regulations, domestic banks are required to lend 40 percent of their total disbursal to the priority sector, which includes areas such as agriculture, MSMEs, education, housing, export credit, and advances to weaker sections.
The RBI has also allowed HDFC Bank to increase its shareholding in HDFC Life and HDFC ERGO to over 50 percent. This is a positive move for HDFC Life, according to brokerage Prabhudas Lilladher, as it removes the overhang of Return on Equity (RoE) dilution due to stake sale.
The merger between HDFC Bank and HDFC, which is considered to be the biggest transaction in India’s corporate history, was agreed upon on April 4 last year.
The deal, which is valued at about $40 billion, creates a financial services titan with a combined asset base of around Rs 18 lakh crore. The merger has already received in-principle approval from regulatory bodies such as the RBI, SEBI, PFRDA, and CCI.
Despite not receiving any relaxation on Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), and Liquidity Coverage Ratio (LCR) norms, HDFC Bank’s stock is expected to see a positive reaction, with brokerage Prabhudas Lilladher assigning a buy rating on HDFC Bank with a target price of Rs 1,925. This represents a potential upside of nearly 15 percent based on the closing price of Rs 1,673.80 on April 21.
About HDFC Bank:
As of April 2021, HDFC Bank Ltd, based in Mumbai, is the largest private sector banking and financial services company in India in terms of assets. It also ranks as the 10th largest bank in the world by market capitalization.
For More Latest News Click Here
