The decision to merge mortgage lender HDFC with subsidiary HDFC Bank has been taken to exploit the advantage of a lower cost of funds and the phenomenal distribution muscle built over the years, the bank’s MD & CEO Sashidhar Jagdishan said.
He further said HDFC Bank already had a huge opportunity with the under-penetration of banking services in the country and the proposed merger adds an entirely different dimension to the future.
“We believe that the runway is huge, and we can potentially add an HDFC Bank every five years. We are excited about the future and are confident that we will continue to have all our stakeholders’ support and trust, as we embark on this exciting new journey,” Jagdishan said in the bank’s annual report 2021-22.
The enhanced capital position of HDFC Bank post the merger also means that the merged entity can take bigger exposures in leading corporates and power the country’s infrastructure build out, he explained.
Talking about other favourable factors for the merger, he said, „In the last few years, the regulatory arbitrage between banks and NBFCs has come down substantially. Today reserve requirements have come down to about 22% from 26%. Both institutions are well capitalised and have surplus liquidity and a strong portfolio of investments in Government securities.“
“The increase in priority sector lending that we need to do, due to the merger, is possible now with our own increased focus on MSMEs, the affordable housing loans that we can do and the well-developed PSL certificate market,” he said adding that all this means that on the day of the merger there may not be any need to raise further funds to meet reserve requirements.
The addition of the home mortgages portfolio on balance sheet makes it more diversified and robust, Jagdishan noted.
The key focus area for the bank to absorb this growth opportunity is to secure enhanced liabilities to fund future growth, he said.
The branch network has been a key deposit mobilisation engine during its 27 years of growth, leading in customer acquisition, customer retention and advertising the solidity of the bank and hence garnering liabilities by becoming the primary banking partner for customers, the MD said.
“Today we have 6,000+ branches across India, and we plan to nearly double our network in the next three to five years by opening 1,500 to 2,000 branches every year. The branch will be digital from a customer on-boarding and transaction/servicing perspective,” he said.
