HDFC seeks RBI permission to classify some bonds under the infra category

The mortgage financier is awaiting RBI’s decision on this even as it is preparing to complete the merger process by the end of this month, a person aware of the matter said.

“The central bank has been examining the request over the last few months and is assessing the possible impact of it if granted,'” said a person familiar with the matter.

Such a dispensation from the RBI would provide some breathing room to the merged entity on the maintenance of the cash reserve ratio (CRR) and statutory liquidity ratio (SLR) on its infrastructure and affordable-housing loan portfolio.

HDFC that is in the process of merging with HDFC Bank is set to face CRR and SLR demands that run into thousands of crores of rupees.

Emails sent to the RBI and HDFC seeking comment did not receive any replies till press time Sunday.

According to RBI rules, funds raised from long-term bonds issued by banks for investment in infrastructure and affordable housing are exempted from maintenance of SLR and CRR. SLR, which represents the portion of deposits that banks must compulsorily park in highly liquid assets including government bonds, is currently 18%. The CRR is 4.5% of the deposits.

“An approval would help the merged entity’s profitability. They have around ₹1.2 lakh crore of such bonds and a dispensation from the RBI would help set off liabilities against the infrastructure and affordable-housing loans for the merged entity without maintaining CRR and SLR on them,” the person said. HDFC itself has about ₹1 lakh crore of affordable-housing loans which, together with the bank’s infrastructure loans, will cover for these liabilities.

In the last financial year, HDFC issued bonds worth close to ₹80,000 crore. It issued another around ₹46,000 crore debt so far in the current financial year, treasury executives said.

On Friday, HDFC informed stock exchanges that the RBI permitted HDFC Bank – which will be the surviving entity after the merger – to hold commercial papers issued by the mortgage financier till their maturity and that the bank shall not roll over or re-issue any such securities after the effective date of the merger.

HDFC also said HDFC Bank will approach the RBI with the crystalised amounts of all the liabilities of HDFC as of the effective date.

The $40-billion HDFC Bank-HDFC merger, announced last year, is expected to be concluded in the coming weeks. HDFC chief executive Keki Mistry told Bloomberg recently that the target was for the merger to be effective early July.

HDFC Bank is the country’s largest private sector lender.

In April, HDFC Bank had said the RBI had refrained from providing it any leeway on overall maintenance of CRR and SLR. Some dispensations were, however, permitted on priority sector lending.

The central bank also permitted subsidiaries and associates of HDFC to continue as investments of HDFC Bank, with the lender allowed to increase its shareholding in HDFC Life Insurance and HDFC Ergo General Insurance.