'HDFC merger template for faster growth'

'If we want faster growth and want greater flow of credit towards the private sector, it's important to have many more of such large entities.'

HDFC Bank Chairman Atanu Chakraborty speaks to Subhomoy Bhattacharjee/Business Standard in New Delhi on the process behind the recent merger with HDFC, the interface with the regulators and the lessons for the banking industry.

How was it to be at the core of the merger discussion, especially as it was drawing to a close?

Well, the process had actually started before April 4, when the merger was actually announced. It was a natural merger, it was rightly conceived.

Everyone at the key positions had to be brought in line with the thinking that the merger will happen.

And luckily on both sides, the boards converged. However, when you really go through the process, so many small little things come up.

One had to go to five different regulators and many times it became an iterative process.

For instance, the Reserve Bank of India permitted us to hold more than 50 per cent in HDFC Life and HDFC, but one had to go to the Competition Commission of India and take those permissions.

That really went down to the last moment. As those shares had to be bought, it was actually the last day when it happened... It really went to the wire.

In the entire process, one realised that Indian regulators had become tremendously data driven and transparent....

In retrospect, do you think the timetable that you set for yourself was very tight?

Not setting the timeline for the process as tight as this would have resulted in a lot of murmurs in the market.

Both are listed companies, a lot of shareholding comes from abroad.

Therefore we could not have set a very loose timeframe. Given to myself, I would have preferred April 1.

And we were very close to it because the National Company Law Tribunal moved very fast, uncharacteristically so... We had to actually go back to them and seek more time.

What are the learnings for the financial sector from this merger?

If you ask for my personal view, I would want to think about the benefit that this merger brings to the country.

Well, it brings in a very large pool of capital under one brand, it creates a big size and big size does give stability.

For instance, it can capture the savings of the economy far better than smaller organisations tend to do.

I am not saying they don't do so, but still. Therefore, if we want faster growth and want greater flow of credit towards the private sector, it's important to have many more of such large entities, not just one.

You look at China, it has four large banks in the space we are talking about. They initially specialised in particular sectors, and then they took off.

Also, if you see the latest financial stability report by RBI, it has talked about the risks like run on deposits arriving faster because of social media... Where is the safety offered by small size?

Therefore, paradigms like too big to fail are coming under stress because even too small to fail is coming under the same question.

In a sense, I must say here, public sector banks preceded us. In 2019, they had merged into four bigger banks. Now they have to scale up from what they have achieved.

So a model already exists and maybe perhaps we can go some further distance with them. This merger can be a template for why growing big is necessary.

But as banks grow bigger, isn't it necessary for the RBI to give more freedom to corporate groups in terms of credit policies?

If we see from the RBI's point of view, they are looking at concentration risk as a major problem.

Also on unsecured credit. I would say after laying the overall template, the RBI doesn't interfere too much in the manner in which credit policies are led now.

So the important thing is the play between the risks, those between larger flows of credit and keeping the business growing.

So if this interplay is properly handled by a bank, the NPA levels can be kept fairly low.

If this balance is not managed well, problems would emerge.

The finance minister has said private capex should push investment. What are your views?

Credit growth is picking up. Banks are now in a lending mode. And then you have the fintechs and NBFCs.

One area I will single out where perhaps some distance needs to be travelled is about banks picking up long-term assets.

In the infrastructure sector where perhaps the government today is bearing too much burden, some amount of private sector financing should come in.

But bank financing because of asset liability mismatch does not find as much space here.

Because there's very little exit available on account of lack of a good bond market.

I guess that's the part where the future policy framework should concentrate.

During my time at the finance ministry, we had laid the groundwork for the expansion of the FAR (fully accessible route) to allow foreign money to come into the debt market.

That's because the government, rightly so, is reducing its deficit and therefore does not want to borrow more.

So that space should expand. Entrepreneurs should use bank finance to build, but then provide an exit route to banks.

That needs a robust corporate bond market to develop, which is not happening.

On a different note, we see the presence of IAS officers all over the corporate sector. Any thoughts?

Well, the IAS does train you to handle many situations, which were never contemplated.

So in a sense, it gives you the width of experience where one is able to see the policy framework more clearly, their nuances more clearly.

The other is to be able to see the larger picture. So I guess as an officer, these are the two advantages.

Also I was plain lucky to be here while this merger was happening.

But I must recognise the effort of many other outstanding people, who walked the process, in the two organisations, at every level.