Combined entity will get benefit of lower cost of funds: HDFC's Keki Mistry

Keki Mistry, vice-chairman and chief executive officer of HDFC, tells Manojit Saha the option to merge with HDFC Bank was on the drawing-board but it is making sense now owing to a variety of factors. Edited excerpts.
 

Why did HDFC decide to give up its identity?

This is not a question of giving up the identity. HDFC was the holding company, and the bank was a separate entity. Time and again we have looked at the possibility of merger. In the past these things did not make sense for a variety of reasons. [Now] cash reserve ratio/statutory liquidity ratio (CRR/SLR) requirements have come down, interest rates are low, there are priority sector lending certificates in the market, the regulatory regime has harmonised -- NPA (non-performing asset) reporting is similar. The merger always made sense because under one roof you have all the products. HDFC Bank does not have a housing loan. But the bank has many customers who want housing loans. Today the bank takes the application from the customer and sends it to our office. We do the credit appraisals, legal checks, etc. We decide whether to lend to the customer or not.

Now these loans will be on the balance sheet of HDFC Bank. All the HDFC employees will move to the bank.

Affordable housing was a focus area for HDFC. Will this continue?

HDFC Bank will have an equal focus on affordable housing.

Can HDFC Bank offer better interest rates to customers?

We have a cost-income ratio of 8.1 per cent. For banks it is more than 30 per cent. If we combine the two entities, [HDFC] Bank can continue to source loans because it has a large distribution platform. HDFC has expertise in processing. The bank will have access to HDFC’s processing strength. And we do it at a low operating cost. The combined entity will get the benefit of the lower cost of funds and a lower operating cost.

Do you see any challenges in integrating the human resources of the two organisations?

No, because integration is easy. HDFC has 3,500 employees, and integrating them in the bank is simple and straightforward. The fact that HDFC Bank does not have a housing loan platform makes it all the more simple.

Will this start a wave of mergers and acquisitions — non-banking financial companies (NBFCs) merging with banks?

I do not think so. I don’t think it will be difficult for NBFCs to survive. They will continue to operate.