New Delhi: The merger of HDFC Bank and HDFC Ltd may be completed a few months or a quarter ahead of the previously announced timetable, according to chief financial officer of HDFC Bank Srinivasan Vaidyanathan, The Business Standard reported.

“Maybe there is (scope of the merger being completed) a quarter or a few months early. We had previously indicated September – call it a Q2-Q3 (FY24) kind of a timeframe. Maybe the way it is going, it may be Q1-Q2. That’s the way that I would put it. Maybe there is a few months…it is running ahead,” he said at a post-earnings analyst call on Saturday.

The largest private lender in the nation, HDFC Bank, released its July-September profits report on Saturday.

The proposed merger of HDFC and HDFC Bank was approved on Friday by the National Company Law Tribunal (NCLT), which authorised the scheduling of a shareholders meeting on November 25 to secure shareholder approval.

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On April 4 of this year, HDFC Bank announced it would acquire HDFC, the biggest mortgage lender in the nation, in a $40 billion deal. The initial deadline for the merger was the second or third quarter of the following fiscal year.

Regarding the requests for regulatory exemptions that HDFC Bank had submitted to the Reserve Bank of India, Vaidyanathan stated that the private lender was still in contact with the regulator. The bank had asked the RBI for permission to follow a phased strategy in order to adhere to legislative standards for priority sector lending, such as the cash reserve ratio and statutory liquidity ratio.

“I think we are going to do 142,000 villages. We were less than 100,000 villages if you go back 12-15 months ago. From here we’ll be on track to go to 200,000 villages. We are on track to organically build this,” he said.

According to RBI regulations, the priority sector, which includes agricultural and micro, small, and medium-sized businesses, must receive 40% of banks’ adjusted net credit.

When asked about the slow rate at which the RBI’s rate increases were being reflected in deposit rates, Vaidyanathan responded that HDFC Bank does not use a formula based on the repo rate or yields on government securities to determine deposit rates. Analysts noted that the bank increased deposit rates by 50 to 60 basis points (bps) in the 1-2-year category as opposed to 190 bps of rate increases by the RBI since May.

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“We monitor that and see at which price point we need the money and thereby, the pricing is done in such a way. It is about the demand, it is about the positioning in the market in terms of what price point we are looking to get,” he said.

Vaidyanathan claimed that the bank has traditionally functioned with margins of 3.94–4.45 percent and suggested that the cycle of policy tightening by the RBI may increase profitability. The core net interest margin for HDFC Bank between July and September was 4.1% on total assets and 4.3% on interest-earning assets. He emphasised how the ratio of retail to wholesale loans has changed over the previous few years.

“Retail is now at 45 per cent, wholesale is at 55 per cent. It’s switched, we are at the lower end of that range and now the rate cycle is going up. So you’re seeing some slight pick-up in the margin,” he said.

In the period from July to September, HDFC Bank’s net profit increased by 20.1% year over year to Rs 10,605.8 crore.

Vaidyanathan blamed a steep increase in short-term benchmark government bond yields for HDFC Bank’s marked-to-market loss of Rs 253 crore in the July-Sept period, despite a 5 basis point decline in the yield on the benchmark 10-year paper.

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Cutoff rates on one-year treasury bills increased by 51 basis points from July to September. Bond prices decrease when yields increase.

The losses were mostly associated with investments in corporate bonds and pass-through certificates, particularly certificates for priority sector loans.

“These bonds and PTCs that we have are more on the front-end side. So, if you look at the dispersion of the bond book, it’s like a pretty good normal distribution around that 1.5-2-year type of range bucket,” he said.

“If you look at the rate, the base rate that determines the valuation of the bonds or PTCs…the base rate is the g-sec rate. The six-month rate is up 77 basis points in the quarter, one-year 67 basis points, two-year is 42 basis points and so on.”

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