Home loans to be cheaper as bank has low-cost deposits: HDFC Bank chairman

The recommendation of the Reserve Bank of India’s Internal Working Group  that large non-banking finance companies (NBFCs) should convert into a bank was a good indication for the merger, says Atanu Chakraborty, chairman of HDFC Bank, in an interaction with Manojit Saha. Edited excerpts:

How can the customers benefit from the HDFC-HDFC Bank merger?

First look at the HDFC customers. They will get the full bouquet of banking services in a very seamless manner. In these digital days, the customer needs the service immediately. This will be possible now because the bank has a superior digital platform. On the other side, customers also get a housing loan product. Plus, there are a lot of 'new to bank' customers that the bank acquires. They will continue to get the services on a full bouquet basis.

Cost-wise, the housing loans would certainly come at a cheaper cost because the bank has low-cost deposits or Casa [current and savings account]. Casa deposits improve the offering of housing loans.

Banks always like to have the mortgages on the books. So, we always bought the mortgages. Now, it will be on a very expanded base. Home loans fall into two categories, priority and non-priority. Both of them will expand because of the large base of HDFC Bank. Till now this was limited by the balance sheet of HDFC.

In what ways affordable housing can get a boost due to the merger?

Because of the low-cost offering that HDFC Bank can do, affordable housing will get a huge boost. That is no longer a sector which is not profitable. Affordable housing is profitable for those who are providing the houses. The biggest demand for affordable housing is coming from tier-II, tier-III, tier-IV cities. HDFC Bank has a reach to these cities. HDFC has a good product. Now its cost and reach – both will improve tremendously. This is a huge plus for the economy also as the central government has housing for all objectives.

How confident that HDFC Bank will get the dispensation on cash reserve ratio, statutory liquidity ratio and priority sector lending, based on the conversation with the regulator?

The conversation that the bank has with the RBI on an ongoing basis on various issues, I will not allude to those conversations because those are private conversations.

The fact is that the two organisations come from two regulatory mechanisms. Both administered by the RBI and the RBI was slowly bringing a banking type of regulation for NBFCs. So, the gap is not big. And there has been a provisioning overlay as they call it, additional provisioning is also available on the balance sheet. I do not foresee an issue there. We cannot jump the gun. They will now start the talks with the RBI. They have been intimated, so they are aware of the deal. Both organisations are known for meeting regulatory standards. The capital base of both the organisations are very strong, much beyond the regulatory requirements.

Was there a deadline prescribed by the RBI within which the organisations were to be merged?

No deadline or anything. There was an internal working group (of RBI), which suggested that large NBFCs should convert themselves to banks. So, that was certainly a good indication which also helped. But certainly there was no prescription.

Is there a plan to expand the board of HDFC Bank? There are only two whole-time directors…

HDFC Bank has the requisite number of board members. Of course, we can have more, that’s a different issue. We have two whole-time directors. That’s an internal process. The corporate governance of the bank as well as HDFC is on an extremely strong footing.

How challenging will the integration of the human resources of the two organisations be?

There are three things to look at when there is a merger of this kind. Systems, culture, and people. We put a lot of emphasis on people. Culturally, both are quite similar. They come from the same stock. That’s very important to understand. On people, you see there are 3,500 employees of HDFC as compared to 120,000 in the HDFC Bank. And there are 560 branches (of HDFC) where manpower is available, and we would be offering our products through these branches…it would be a phased roll-out, as people get trained. We will need the manpower. So, I don’t see any challenges.