HDFC Bank News: After the successful completion of the $40 billion merger with its parent company, HDFC Bank, Sashidhar Jagdishan, the Chief Executive Officer, raised concerns regarding funding risks in the inaugural annual general meeting, as per PTI’s report.
Jagdishan conveyed his reservations to the shareholders subsequent to the merger, which officially came into effect on July 1st. He remarked, “As you may be aware, one of the potential risks associated with the merger pertains to the funding dimension.”
At present, HDFC Bank has not obtained full approval for all the concessions it had requested from the Reserve Bank of India (RBI) with regard to its liabilities.
“Appreciating your awareness, it’s imperative to note that the merger’s potential vulnerabilities are rooted in its funding aspects,” Jagdishan conveyed to the shareholders of the preeminent private sector financial institution.
Furthermore, he elaborated that the net interest margins (NIM) for the bank are anticipated to decrease starting from the September quarter, primarily due to the mortgage portfolio of Housing Development Finance Corp (HDFC), which maintains a narrower differential. The net interest margin for HDFC Bank stood at 4.1 percent in the period spanning April to June.
Navigating Post-Merger Dynamics: HDFC Bank’s Strategy and Challenges
With the HDFC and HDFC Bank merger coming into force on July 1st, the upcoming Q2FY24 will mark the maiden quarter for reporting the merged entity’s results.
In a bid to foster loan expansion at an ambitious 18 percent, HDFC Bank has set a formidable target of accumulating Rs 4 lakh crore in deposits.
Anticipating the future, Jagdishan acknowledged the impending downward trajectory of the bank’s margins.
“We function within a bandwidth of 4-4.4 percent of Net Interest Margin (NIM) across diverse businesses and interest rate cycles. While it’s also influenced by the composition of our business activities, these NIMs largely define our operational framework,” Jagdishan elucidated.
A noteworthy aspect is HDFC Bank’s limited success in securing the full array of exemptions sought from the Reserve Bank of India (RBI) concerning its liabilities.
The RBI declined to offer any leniency regarding Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requisites for the deposits originating from HDFC, an entity engaged in accepting deposits.
Moreover, inquiries surfaced about the potential implications on HDFC Bank following the RBI’s recent imposition of an incremental Cash Reserve Ratio (ICRR) of 10 percent on deposit inflows across all scheduled commercial banks post-May.
During the recent MPC review meeting, the central bank issued directives for banks to maintain an Incremental Cash Reserve Ratio (ICRR) of 10 percent on the surge in deposits between May 19 and July 28, aiming to alleviate excess liquidity within the banking system.