ALSO READ | HDFC, HDFC Bank merger: Analysts see banking industry consolidating
The current regulation permits banks to hold up to 50 per cent stakes in insurers and on a selective basis equity holdings can be higher but must eventually be brought down within a certain period. However, the RBI has proposed to limit banks' ownership stake in non-core businesses at 20 per cent.
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Analysts at Macquarie also warn against near-term hit on the bank's profitability.
"HDFC Bank will have an excess statutory liquidity ratio (SLR) and cash reserve ratio (CRR) asset requirement of Rs 70,000-80,000 crore and will also need an incremental Rs 90,000 crore agriculture portfolio to meet priority sector lending (PSL) norms. These low-yielding portfolios could be a drag on the merged entity's profitability," they said.
ICICI had undergone a similar group merger in 2002. The current account-saving account (CASA) for ICICI (as percentage of total funding) dropped from 26 per cent (FY01) to 9 per cent in FY03 and recovered to the 30 per cent level only by FY10.
"Refinancing HDFC Ltd’s funding with low-cost deposits will be key for success of the merger. HDFC Bank's effective CASA could go down to 35 per cent from 47 per cent post merger," Macquarie added.
That said, analysts expect HDFC Bank to enjoy improved housing loan portfolio, better capital buffer. stable net interest margin (NIMs), and higher valuation in the long-term.
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