The Reserve Bank of India has authorised HDFC Bank Ltd and Housing Development Finance Corporation to choose regulatory relief to smooth out the merger, expected to be completed by July of this year.
According to a notification, the central bank has allowed the bank to achieve priority sector lending standards in a staggered method over three years.
However, following the merger, HDFC Bank will be required to maintain a particular level of cash reserve ratio, statutory liquidity ratio, and liquidity coverage ratio on the entire amalgamated balance sheet from the start.
The RBI has denied to impose any exceptions to the cash reserve ratio (CRR) and statutory liquidity ratio (SLR) norms sought by HDFC Bank, while allowing some wiggle room on priority sector lending (PSL) and investments.
According to the RBI letter, HDFC Bank must continue to comply with existing CRR, SLR, and LCR (liquidity coverage ratio) standards from the effective date of the merger. CRR is the percentage of deposits that a commercial bank, such as HDFC Bank, must park with the central bank and on which no interest is paid.