HDFC Bank Chairman Atanu Chakraborty I spoke to Subhomoy Bhattacharjee in New Delhi on the process behind the recent merger with HDFC, interface with regulators and lessons for the banking industry. Edited excerpts:
What was it like to be at the center of the merger discussion, especially as it neared its end?
Well, the process had actually started before April 4, when the merger was actually announced. It was a natural fusion, it was properly conceived. Everyone in key positions had to be brought into line with the idea that the merger was going to happen. And luckily on both sides the boards came together. However, when you really go through the process, so many little things come up. One had to go to five different regulators and many times it became an iterative process. For example, the Reserve Bank of India allowed us to hold more than 50 percent in HDFC Life and HDFC, but one had to go to the Competition Commission of India and get those permissions. It really happened until the last minute. Because those shares had to be bought back, that was actually the last day that happened… It really went down to the wire.
In the whole process one realized that Indian regulators have become extremely transparent and data driven….
In retrospect, do you think the schedule you set yourself was very tight?
Not setting the timeline for the process as tight as it would have led to a lot of grumbling in the market. Both are registered companies, a large part of the shareholding comes from abroad. Therefore, we could not set a very loose time frame. That being said, I’d prefer April 1st. And we were very close to it because the National Company Law Tribunal (NCLT) was moving very fast, unusually so… We actually had to go back to them and seek more time.
What are the lessons for the financial sector from this merger?
If you are asking about my personal view, I would like to think about the benefit this merger brings to the country. Well, it brings a very large pool of capital under one brand, creates large size, and large size gives stability. For example, it can capture the economy’s savings much better than smaller organizations typically do. I’m not saying they don’t, but still. Therefore, if we want faster growth and we want a greater flow of credit to the private sector, it is important to have many more such large enterprises, not just one. Look at China, they have four big banks in the space we’re talking about. At first they specialized in certain sectors and then developed. Also, if you see the latest RBI financial stability report, it talks about the risks like accumulation of deposits arriving faster due to social media… Where is the safety offered by the small size? Therefore, paradigms such as too big to fail are under stress because even too small to fail falls under the same question. In a sense, I must say that the public sector banks preceded us. In 2019, they merged into four larger banks. Now they have to rise from what they have achieved. So there is already a pattern and maybe we can go a little further with them. This merger can be a template for why growth is necessary.
But as banks grow, shouldn’t RBI give more freedom to corporate groups on credit policy?
If we see from RBI’s point of view, they see concentration risk as a major issue. Also on unsecured credit. I would say that after setting the overall template, RBI does not interfere too much in the way credit policies are conducted now. So the important thing is the play between risks, those between greater credit flows and sustaining business growth. So, if this interaction is managed properly by a bank, NPA levels can be kept relatively low. If this balance is not managed well, problems will arise.
The finance minister said private capital expenditure should spur investment. What are your views?
Credit growth is accelerating. Banks are already in lending mode. And then you have fintech and NBFCs. One area that I will highlight where perhaps some distance needs to be covered is around banks taking long-term assets away. In the infrastructure sector, where perhaps the government today carries too much of a burden, some private sector funding needs to come in. But bank financing due to the mismatch of assets and liabilities does not find so much place here. Because there is very little exit available due to the lack of a good bond market. I suggest that this is the part where the future policy framework should concentrate.
During my time in the finance ministry, we had laid the groundwork for expanding the FAR (fully accessible route) to allow foreign money to enter the debt market. This is because the government is rightly reducing its deficit and therefore does not want to borrow more. So this space needs to be expanded. Entrepreneurs must use bank financing to build, but then provide an exit route to the banks. This needs a stable corporate bond market to develop, which is not happening.
On the other hand, we see the presence of IAS officers across the corporate sector. any thoughts?
Well, IAS trains you to deal with many situations that were never thought of. So in a sense it gives you the breadth of experience where one can see the policy framework more clearly, their nuances more clearly. The other is being able to see the bigger picture. I guess as an officer, those are the two advantages. Also, I was very lucky to be here while this merger was happening. But I must acknowledge the efforts of many other outstanding people who walked the process, in both organizations, at every level.