It is still quite early to predict, but there is a possibility of Housing Development finance Corporation is considering a merger with one of its associate company HDFC Bank. As per the available information Mr. Deepak Parekh observed that they are looking at various options and also added that both companies are already working very closely with each other. The merger may have already been discussed by top officials at both organisations. Analysts feel that though a merger may result in HDFC’s part of the business having to maintain a higher statutory liquidity ratio, the combined entity would be better placed for synergies. Now, housing finance companies need to maintain an SLR of just 12.5 per cent, against 25 per cent by banks. The RBI’s green signal on universal banking ,which came in its monetary policy for the first half of the current fiscal, provided the impetus HDFC was seeking. The RBI, in its policy, has said that institutions, if they wish to do so, should have the option to transform into a bank provided they meet prudential norms. An added advantage of a merger would be that lending rates on housing finance would drop since the company would be in a position to prune its cost of funds. HDFC’s costs of funds in 1998-99 stood at 13.65 per cent, almost twice that of the bank’s 7.1 per cent. HDFC currently sources nearly a third of its funding requirement through public deposits, the only way it can as a housing finance company. Thanks to competition from banks, interest margins are under pressure. Any move to cut deposit rates further could see deposits moving to the mutual funds. While HDFC focuses on housing finance, the bank has steered clear of this, preferring to focus on retail banking products like loans against shares, personal and auto loans. But officials at HDFC Bank admitted there could be a conflict of interest on the auto loans which HDFC entered in a small way last year. HDFC has an employee base of nearly 850 employees while the bank has about 1,250 employees.
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