HDFC Bank gets relief in priority sector lending norms post merger

Under the priority sector lending norms, Indian banks are required to lend at least 40% of their total disbursal to the priority sector

The Reserve Bank of India (RBI) has allowed HDFC Bank to meet priority sector lending requirements in a staggered fashion over three years post-merger with HDFC Ltd.

This comes as a big regulatory relief for India’s largest private sector lender which seeks to complete its reverse merger with the parent Housing Development Finance Corporation Ltd (HDFC) by July this year.

“Adjusted Net Bank Credit may be calculated considering one-third of the outstanding loans of HDFC Limited as on the effective Date of the amalgamation for the first year. The remaining two-thirds of the portfolio of HDFC Limited shall be considered over a period of the next two years equally,” HDFC Bank said in a regulatory filing to the stock exchanges.

Under the priority sector lending norms, Indian banks are required to lend at least 40 per cent of their total disbursal to the priority sector which comprises agriculture, micro and small enterprises, education, housing, export credit and advances to weaker sections.

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The central bank has also allowed HDFC Bank or HDFC Ltd to increase the shareholding to more than 50 per cent in HDFC Life Insurance and HDFC ERGO General Insurance prior to the effective date of the merger.

Investments including subsidiaries and associates of HDFC Limited are allowed to continue as investments of HDFC Bank.

Further, the RBI has permitted HDFC Bank to continue holding HDFC Limited’s stake in (a) HDFC Education and Development Services Private Limited, engaged in operating three education schools, for a period of two years from the effective date of merger.

In HDFC Credila Financial Services Ltd, HDFC Bank will be required to bring down stake to 10 per cent within two years from the effective date and will not be allowed to on-board new customers. Currently, HDFC Credila Financial Services is fully owned by HDFC.