Deepak Parekh said, larger balance sheet and larger capital base will allow greater flow of credit in the economy, it will enable underwriting of larger ticket loans including infrastructure loans which are in need of the country.
Soon after the boards of HDFC and HDFC Bank approved scheme of merger, Chairman of HDFC, Deepak Parekh said that the merger is coming together of equals. Parekh said that the recent changes in regulations for non-banking finance companies (NBFCs) and banks by the Reserve Bank of India are one of the key reasons for the merger of the two entities.
“Last three years has seen a host of guidelines issued by the Reserve Bank of India on harmonising regulations between the banks and NBFCs. These have included guideline such as large NBFCs to be converted into commercial banks, particularly those with over Rs 50,000 crore asset base. RBI has made same NPA classification for housing finance companies, NBFCs and banks. We are required under RBI's regulation to provide liquidity coverage ratio, that means NBFCs have to maintain liquidity against the next 30 days outflow on a rolling basis,” Parekh said.
He added that RBI’s implementation of scale based audit systems, core financial solutions systems for NBFCs like core banking systems at banks and risk based internal audit considerably reduces arbitrage between banks and NBFCs.
“Scale based regulations for NBFCs have been introduced by RBI where we would be recognised as a large organisation in the upper layer of NBFCs and the upper layer of NBFCs will have a much closer and stricter regulatory requirement.
Another factor is core financial solution system, RBI has asked NBFCs to follow core financial solution system like the banks which is following a core banking system and risk based internal audits. These measures have considerably reduced regulatory arbitrage which was there between a bank and an NBFC,” Parekh said.
“Change is welcome when it is beneficial to all stake holders the merger will make the combined entity strong enough not only to counter competition but make mortgage offering more competitive we will be able to offer all the variations in the mortgage products which currently as HDFC standalone we are unable to offer such products such as overdraft products. The merger will capitalise on our domain knowledge in real estate and mortgages as well as our operational efficiencies processing mortgages. While leveraging cost of funds efficiency and the wide distribution network of HDFC Bank,” said Parekh.
Parekh said that the merger will benefit the country’s economy in more ways than one. He said, “The larger balance sheet and larger capital base will allow greater flow of credit in the economy, it will enable underwriting of larger ticket loans including infrastructure loans which are in need of the country, it will enable delivery of home loan offering to large base of 68 million customers of banks and improve the pace of credit growth of the economy.”