HDFC Bank-HDFC Merger – RBI Issues Clarification on HDFC Bank’s Commercial Liabilities

In a recent development surrounding the HDFC Bank-HDFC merger, the Reserve Bank of India (RBI) has issued a crucial clarification regarding HDFC Bank’s commercial liabilities. The central bank has explicitly instructed HDFC Bank not to roll over or re-issue any commercial papers issued by HDFC Ltd after the effective merger date. This regulatory guidance aims to ensure a smooth transition and maintain stability in the financial market.

Clarification on commercial papers
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Clarification on Commercial Papers

The RBI’s clarification comes in response to HDFC Bank’s request seeking guidance on the treatment of commercial papers in light of the merger between HDFC Bank and HDFC Ltd. The RBI, through an email dated June 16, 2023, has advised HDFC Bank that it can hold the commercial papers issued by HDFC Ltd until their maturity. However, after the effective date of the proposed amalgamation, HDFC Bank is prohibited from rolling over or reissuing any commercial paper.

Commitment to Regulatory Compliance

HDFC Bank promptly informed the market about the RBI’s response through a regulatory filing on Friday. The bank expressed its commitment to comply with the regulatory requirements and emphasized its intention to hold the commercial papers issued by HDFC Ltd as per the RBI’s directive.

Furthermore, HDFC Bank intends to approach the RBI with the crystallized amounts of all the liabilities of HDFC Ltd as of the Effective Date, ensuring transparency and adherence to regulatory norms.

RBI’s Decision and the Merger Process

The RBI’s issuance of this clarification is an important step in the overall process of the HDFC Bank-HDFC merger. HDFC Bank initially conveyed the decision taken by its Board of Directors to approve the merger scheme under Sections 230 to 232 of the Companies Act, 2013,

and relevant rules and regulations. The merger process is subject to the receipt of various statutory and regulatory approvals.

SEBI’s Approval and Mutual Funds

As per Buisness today , Aside from the RBI’s clarification, the Securities and Exchange Board of India (SEBI) has also been involved in the regulatory oversight of the merger process. On April 21, 2023, HDFC Bank announced that SEBI had granted its approval for the proposed change in control of HDFC Asset Management Company Limited (HDFC AMC), a subsidiary of HDFC Ltd and the asset management company of HDFC Mutual Fund (HDFC MF).

However, it’s worth noting that mutual funds could face certain challenges as a result of the merger. Reports suggest that SEBI will not grant special exemptions to mutual funds if they breach the norms for maximum permitted holdings in a security after the merger of HDFC Bank and HDFC Ltd.

According to SEBI rules, a mutual fund scheme cannot invest more than 10 percent in a single security, with certain exemptions for exchange-traded funds and funds focused on specific sectors.

Impact on Equity Mutual Fund Schemes

Approximately 60 equity mutual fund schemes are expected to exceed the 10 percent cap in their combined exposure to HDFC Bank and HDFC Ltd. This situation has raised concerns among industry experts and

has been referred to the Association of Mutual Funds in India (AMFI) for further evaluation. AMFI officials and industry executives have been analyzing the potential impact of the merger, assessing the extent to which the industry will need to adjust its holdings to comply with regulatory limits.


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