CRR-SLR relief a must to look at HDFC-HDFC bank merger: Keki Mistry, CEO, HDFC

Housing Development Finance NSE -0.89 % Corp. and its unit HDFC Bank NSE -1.08 % would evaluate a possible merger only when the regulator provides some exemption on the mandatory liquidity buffers prescribed for banks. Without that, the costs involved make any merger imprudent, said Keki Mistry, chief executive of HDFC, ET’s Company of the Year. Mistry also said this was the best time to buy a house, thanks to low-interest rates.“The biggest challenge to the merger is the cost of providing the CRR (cash reserve ratio) and the SLR (statutory liquidity ratio) on the existing balance sheet… and more importantly the priority sector,’’ Mistry said. “So, if there was some regulatory concession made available to us, it is something we will look at, at that point of time. But at this moment, for the last six or seven years, we have had no discussions about the merger.”

A merger between HDFC and HDFC Bank has been a recurrent theme for the past two decades as a combination could lead to synergies. Speculation about it gains momentum whenever the interest rate cycle turns as a combined banking entity could get funds cheaper. That’s “because this (HDFC’s) balance sheet was not created out of CASA (current account savings account) deposits but out of long-term deposits,” said Mistry.

The realty market is reviving with record low-interest rates and some steps by state governments, such as stamp duty cuts, he said. “This is one of the best times to buy a house,” he said. “Interest rates are at an all-time low and it is unlikely that we will see a further decline in rates. Property prices are as low as they can be, and are not expected to go down further.”