HDFC-HDFC Bank merger: Inner circle of 7 kept deal under wraps until end

Such was the level of secrecy to keep the merger deal under wraps that even the banner with names of HDFC Bank and HDFC Ltd that was to be put up at the press conference for the merger announcement of the two entities went for printing after midnight Sunday.

Sources close to the development said only seven persons were involved in the finalisation of the merger. No one else knew about it. “The evaluation had been going on but it moved over the last couple of weeks and got finalised,” said a source who was part of the discussions.

The seven individuals were Deepak Parekh, Keki Mistry, Renu Sud Karnad and V Srinivasa Rangan from HDFC Ltd and Atanu Chakraborty, Sashidhar Jagdishan and Srinivasan Vaidyanathan from HDFC Bank.

Besides this group, the only person who knew about the merger plan was the RBI Governor. At least 2-3 rounds of meetings, the source said, were held with Governor Shaktikanta Das over the last 10 days.

In fact, a number of key officials within the group were not aware until late Sunday night. A top fund manager with the HDFC group and a top official of the bank said that even they got to know about it only late in the evening.

Two senior marketing officials with the bank and the housing finance company said they were told Sunday evening since they had to prepare for the event and other formalities.


Looking at a win-win

A bigger balance sheet and broader capital base will allow the combined entities to leverage greater flow of credit and enable underwriting of larger ticket loans. Customers are likely to gain by way of mortgages being offered as a core product, with the bank likely to leverage the long-tenor mortgage relationship to offer more credit, deposit products.

Managing to keep the merger under wraps, Deepak Parekh, at the beginning of the press conference, said: “I am disappointed with the members of the press. Generally, they tell us a day before what is going to happen, but they did not tell us about this.”

A source confirmed that most of the deal formalities and share swap ratio were finalised among this group of seven and a team of lawyers was brought in last Monday to work out the formal details of the merger.

“There was no complexity on the valuation front as both the entities are listed. Also, valuation was not an issue and most of the members in the group of seven are capable of doing that. There was a consensus on the share swap ratio,” the source said.

While the share swap ratio has been fixed at 1.68 shares of HDFC Bank for every share of HDFC Ltd, the source said the shares of HDFC Bank and HDFC Ltd have maintained a ratio of 1.65 to 1.7 over a period of 90 days to 2 years and so it was not much of a concern.

The source said that in their meetings with the RBI Governor, while the merging entities asked for relaxation on meeting regulatory requirements relating to CRR, SLR and priority sector lending (PSL) for the merged entity, the RBI said it will look into it. “As of now, they have neither declined nor agreed on the relaxations,” the source said.

The bank has asked the RBI to allow them to meet the regulatory requirements on CRR, SLR and PSL over three years and they would do 1/3 each year, the source said. The RBI is learnt to have told them that they need to first apply and then they will look into it.

Asked why HDFC Ltd has gone for a merger with HDFC Bank, besides factors such as prevailing low interest rate environment, decline in CRR and SLR requirement from 27 per cent to 22 per cent and high liquidity in the system, the source said that succession at HDFC Ltd was also one of the factors. “That was one of the considerations for the merger but not the key consideration,” the source said.

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