Sold Credila as merger required lengthy regulatory approval process: Parekh

Deepak Parekh, the former chairman of HDFC, on Thursday said Credila -- the group's erstwhile education loan arm -- was sold because of the multiple regulatory approvals needed to complete the merger process, and it was “not worth the effort.”

In June, a consortium of private equity firms, including BPEA EQT and ChrysCapital, acquired a 90 per cent stake in HDFC Credila Financial Services for Rs  9,060 crore.

On July 1, housing finance major HDFC completed the reverse merger with its subsidiary HDFC Bank.

In April, the RBI had asked HDFC to reduce its stake in Credila to under 10 per cent over the next two years.

Speaking at the Global Fintech Fest 2023 on Thursday, Parekh who is now the chairman of HDFC Life and HDFC AMC, said: “During the merger of HDFC and HDFC Bank, RBI had given us a choice to either sell or merge HDFC Credila. We sold it because the total assets of Credila was Rs 15,000 crore, and the merged assets of HDFC and HDFC Bank was around Rs 25 lakh crore. To merge assets worth Rs 15,000 crore with assets of Rs 25 lakh crore would take the same one year with multiplicity of approvals, and it was not worth the effort.”

“It is better. Banks start giving educational loans directly and make some money out of it,” Parekh explained.

Credila, a non-banking financial company (NBFC), which was not required to comply with cash reserve ratio (CRR) and statutory liquidity ratio (SLR) like banks.

In case it merged with HDFC Bank, it would have to maintain CRR and SLR for Credila’s Rs 15,000 crore book.

Parekh acknowledged that the debt recovery mechanism in India remained a challenge that needed stricter norms.

He also touched upon amendments across several government bodies, including the legal system and National Company Law Tribunal (NCLT), for the smooth functioning of the financial sector, along with changes required in the investment pattern of insurance companies to keep pace with the growth of the Indian economy.

“The recovery of debt is a painful process. It is not easy even after SARFAESI (Act). The efficacy of the legal system is still not fast. We have to improve our legal system, decisions from insolvency, NCLT and others should come much quicker,” he added.