Save time by listening to our audio articles as you multitaskAs important as the scale of the deal is what it says about the evolution of finance in India. Both institutions are among the most successful private-sector financial firms in a country where state-owned banks still loom large .was founded in 1977 to provide basic housing finance. In the ensuing 45 years it has financed the purchase of 9m homes.’s chairman, Deepak Parekh, adeptly launched other financial institutions.
For years there were advantages in maintaining separate institutions. Banks had access to cheap funding through deposits, but paid for the privilege through onerous capital requirements and rules that made them devote 40% of credit to “priority” areas, such as farming. Non-bank finance firms were easier to create—thousands sprang up—and faced less-stringent lending or capital requirements, but lacked cheap overnight deposits.
It proved a messy, even dangerous development, as many went on a lending and borrowing binge. In 2018-19 several prominent non-banks, includingand two housing-finance firms, collapsed. There were fears of more failures to come, and funding dried up for many finance companies. That in turn led to a credit crunch.
Since then, regulatory changes have been quietly instituted, making life harder for the non-banks. The complex capital requirements imposed on them have been raised, for instance, to bring them largely in line with banks. That has made the operating restraints on finance companies somewhat bank-like, but without the benefits of cheap deposits. Jefferies, an investment bank, estimatesBank. The spread for other finance companies is probably wider.
With the merger, that distinction will disappear, providing a meaningful cost saving and competitive advantage. Meanwhile,Bank, which has a sprawling network of 6,500 branches, ten times as many as its housing-finance cousin, will be able to offer mortgages to its customers directly—something that might have doubled its size had it been able to do so all along, said Sashidhar Jagdishan, the bank’s chief executive, on April 4th.
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