Baring Private Equity Asia EQT is all ready to acquire India-based Housing Development Finance Corp’s (HDFC) educational loan unit – Credila Financial Services – in a deal of approximately $1.3 billion to $1.5 billion. Baring has formed a partnership with ChrysCapital for the transaction. The buyout fund will take over 90 per cent of the company, with HDFC retaining the remaining 10 per cent stake, which it is likely to sell over the next two years.
By the end of June, a formal announcement is expected, ahead of the merger between HDFC Ltd and HDFC Bank Ltd, to create the world’s fourth-largest bank, according to the people.
Initially in April, the Reserve Bank of India had allowed HDFC Bank to continue holding HDFC’s stake in HDFC Education and Development Services Private Ltd, which is involved in operating three education schools, for a period of two years from the effective date. HDFC Credila Financial Services Ltd is subject to the shareholding being brought down to 10 per cent within two years from the effective date and not onboarding new customers.
Last month on April 21– ahead of the proposed merger, HDFC said the Reserve Bank of India (RBI) has permitted the private lender to increase its stake to more than 50 percent in HDFC Life Insurance Company Ltd and HDFC ERGO General Insurance Company Ltd before the effective date.
But, HDFC Bank will continue to adhere to the extant requirements of statutory liquidity ratio (SLR), cash reserve ratio (CRR), and liquidity coverage ratio (LCR) from the effective date without exception.
SLR is a percentage of deposits that banks have to maintain in the form of government securities, while CRR is the amount of funds that banks have to keep with the RBI.
The move comes after the bank had written a letter to RBI regarding certain relaxations sought by HDFC Bank in relation to the proposed merger with HDFC.
Concerning the priority sector lending (PSL), the RBI said the adjusted net bank credit may be calculated considering one-third of the outstanding loans of HDFC as on the effective date of the amalgamation for the primary year. The remaining two-thirds of the portfolio of HDFC shall be considered over a period of the subsequent two years equally.
In the fiscal year 2021, HDFC Bank missed its PSL target which was blamed to the pandemic’s impact on the economy. The bank has been trying to put efforts to surge its lending to priority sectors, such as agriculture, micro, small, and medium enterprises (MSMEs), and housing.
HDFC Credila Financial Services Ltd is subject to the shareholding being decreased to 10 percent within two years from the effective date and to abstain onboarding new customers.
Source: Moneycontrol
The letter given by RBI to the lender also stated that one-time mapping of each of the borrowers of HDFC would need to be completed by HDFC Bank for benchmark and spreads. All retail, MSME, and other floating rate loans sanctioned by HDFC would be linked to the appropriate benchmark within 6 months from the effective date.
The RBI said it has allowed loans against shares for promoter contributions or in excess of Rs 20 lakh to the individuals, to continue for its existing duration/maturity by HDFC.
Following the effective date, asset classification of accounts in the books of HDFC Bank will be as per the norms applicable to banks, the apex bank said to HDFC Bank.
Known to be the largest transaction in India’s corporate history, HDFC Bank on April 4, 2022, agreed to take over the biggest domestic mortgage lender in a deal valued at about $40 billion, creating a financial services titan.
The deal has got an approval nod from the stock exchanges, Reserve Bank of India (RBI), SEBI, Pension Fund Regulatory and Development Authority (PFRDA), and Competition Commission of India (CCI).
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