HDFC Bank writes to RBI, seeks approval to hold 50% stake in HDFC Life

HDFC Bank has written to the Reserve Bank of India (RBI) asking for permission to hold either the 47.82 per cent stake that HDFC Ltd currently owns in life insurance subsidiary HDFC Life or allow it to buy additional stake in the company from the market such that it increases its holding to 50 per cent.

Deepak Parekh, chairman of HDFC, said: “The RBI rule says either you have above 50 per cent or 30 per cent, and we are at 48 per cent in our life insurance subsidiary. So, we have taken up the matter with RBI and we have to get a reply sometime sooner, permitting us to keep the stake as it is or they may tell us to buy that extra stake, which we can easily buy in the market to be compliant with the banking regulation of holing 50 per cent”.

On Monday, the boards of HDFC and HDFC Bank respectively approved the amalgamation of the corporation with and into HDFC Bank. Post the merger, HDFC Bank will be 100 per cent owned by public shareholders and existing shareholders of HDFC will own 41 per cent of HDFC Bank. Subject to RBI and other regulatory approvals, material subsidiaries and associate companies of HDFC will continue to be owned by HDFC Bank, the HDFC management said.

Parekh said, the bank has requested the RBI to allow it to comply in a phased manner with norms with respect to statutory liquidity ratio and cash reserve ratio, priority sector lending as well as grandfathering of certain assets and liabilities of some of its subsidiaries. These requests are under consideration by the RBI in terms of their letter to the bank dated

April 1.

HDFC has 47.82 per cent stake in HDFC Life, the listed life insurance subsidiary of the mortgage financier. It also has a 49.98 per cent stake in HDFC Ergo, its general insurance arm.

A Macquarie research report said the RBI’s approval will be key as the bank will end up owning 48 per cent in the life, around 50 per cent in the general insurance, and 69 per cent in the asset management arms. “Very recently, RBI did not allow Axis Bank to directly own [more than] 10 per cent in Max Life, and ICICI Bank was asked to bring down shareholding in ICICI Lombard to [less than] 30 per cent”, the report added.

Talking about this, Keki Mistry, vice-chairman and chief executive officer, HDFC, said in an analyst call: “There are already banks which own equity insurance companies, which are not capped at 10 per cent. We will, of course, be having detailed discussions with RBI but at the moment we have sought that the existing subsidiaries of HDFC Ltd and our associate companies will continue to be subsidiaries and associate companies of the bank.”

He added that the immediate plan is that “HDFC Bank will be an operating bank as well as holder in equity of other businesses like insurance, asset management and so and so forth. And, there is existing precedence to that effect. If and when in future RBI requires banks to move to a holding company model then at stage the bank will look at it”.

ICICI Bank currently holds 51.32 per cent in ICICI Prudential Life Insurance and 48.05 per cent in ICICI Lombard General Insurance. State Bank of India holds 55.48 per cent in its life insurance subsidiary SBI Life Insurance and 70 per cent in SBI General Insurance. Similarly, Kotak Mahindra Bank owns 100 per cent stake in both its life and general insurance subsidiaries.

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