India’s Biggest-Ever Merger Is Due To Regulatory Tightening: FT

The proposed $40bn merger between India’s biggest private sector bank and mortgage provider has been driven by tighter regulation of the country’s shadow banking sector, according to the executive spearheading the deal.

The merger of HDFC Bank and Housing Development Financing Corporation (HDFC) would be the largest in the country’s history and create a financial services behemoth. 

The combined company would have an asset base of $340bn, according to Fitch Ratings, double the size of its closest rival ICICI Bank. Deepak Parekh, chair of HDFC, said the deal was partly motivated by regulations that will come into force in October for large non-bank financial companies after a series of collapses in the sector wiped out the savings of millions of depositors. 

Shadow banks will be subjected to similar rules as state-owned and commercial lenders, including having to meet more stringent liquidity requirements. “In anticipation of that we had to take a call,” Parekh told the Financial Times in an interview, adding that the deal was “necessary for both sides”. 

The merger will immediately expand HDFC Bank’s mortgage portfolio and enable it to sell more home loans as the company looks to take advantage of India’s post-pandemic recovery. 

Parekh said demand was rising as families upgraded to larger homes after being cooped up in lockdown, adding that HDFC had received 83,000 loan applications in March, far more than the 65,000-70,000 monthly average. The bank would also be able to borrow more, he said, as a number of Indian lenders had hit a ceiling in terms of how much they could loan to HDFC. 

“Many lenders to us have reached their mandatory lending limit . . . the sources were drying up,” he said.

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