HDFC-HDFC Bank merger to benefit NBFCs

In a significant financial development, the merger of Housing Development Finance Corporation (HDFC) into HDFC Bank has created an opportunity for other nonbanking financial companies (NBFCs) and housing financiers to access around Rs 1.5 lakh crore of bank limit, according to industry analysts.

The regulatory guidelines set by the Reserve Bank of India (RBI) stipulate that banks cannot exceed an exposure of 20 percent of their Tier 1 capital in a single NBFC and 25 percent in one NBFC group. This merger has effectively shifted HDFC Ltd’s exposure to the financial system away from the NBFC/HFC classification, offering a potential financial boon to other players in the sector.

As of March 31, 2023, HDFC Ltd’s total borrowings amounted to a substantial $69.14 billion. Approximately 23 percent of this borrowing, equivalent to around $15.9 billion or Rs 1.5 lakh crore, comprised term loans from banks. This exposure reclassification indicates that while the cost of funds may not necessarily decrease, NBFCs can now potentially raise a significantly higher quantum of funds from banks at a similar cost.