RBI grants HDFC Bank 3-year relaxation for meeting PSL requirements after merger with HDFC ( Housing Development Finance Corporation Ltd ) and SEBI allows ownership change of HDFC AMC, providing more flexibility to HDFC Bank's mutual fund business.

RBI grants HDFC Bank 3-year relaxation for meeting PSL requirements after merger with HDFC ( Housing Development Finance Corporation Ltd )

In April 2023, the Reserve Bank of India (RBI) announced that it has provided HDFC Bank with a relaxation of three years to meet Priority Sector Lending (PSL) requirements following its merger with Housing Development Finance Corporation Ltd (HDFC). 

This move is significant as HDFC Bank is India's largest private sector lender and has been struggling to meet the mandated PSL targets due to its high exposure to the corporate sector.

Understanding Priority Sector Lending (PSL) Requirements for Banks in India and the Recent Relaxation Granted to HDFC Bank

PSL is a mandatory requirement for banks in India to lend a certain percentage of their loans to specific sectors like agriculture, micro and small enterprises, education, and housing. 

The RBI has set a target of 40% PSL for banks in India. With this relaxation, HDFC Bank can continue with its current level of PSL lending for the next three years, providing it with more time to adjust to the new mandate.

Strict Regulations on CRR and SLR Requirements for HDFC Bank Post-Merger

However, the RBI has refused to make any exceptions on cash reserve ratio (CRR) and statutory liquidity ratio (SLR) requirements as sought by HDFC Bank. 

HDFC Bank will have to set aside 4.5% of HDFC's assets as CRR and 18% as SLR after the merger. 

CRR and SLR are ratios that require banks to maintain a certain percentage of their deposits as reserves with the RBI, ensuring that banks have enough cash to meet any demands from depositors.

SEBI allows ownership change of HDFC AMC, providing more flexibility to HDFC Bank's mutual fund business.

In addition to the PSL relaxation, Securities and Exchange Board of India (SEBI) has allowed ownership change of HDFC Asset Management Company Limited (HDFC AMC), a subsidiary of HDFC Limited and the AMC of HDFC Mutual Fund (HDFC MF).

 This move is expected to provide more flexibility to HDFC Bank in managing its mutual fund business.

Overview of HDFC Bank: Establishment, Location, Tagline, and Leadership

HDFC Bank was established in 1994 and has its headquarters in Mumbai, Maharashtra. The bank's tagline is "We Understand Your World." Sashidhar Jagdishan is the current MD & CEO of HDFC Bank.