‘There cannot be a strong economy and weak banks; they have to go side by side’
Housing Development Finance Co Ltd (HDFC), India’s largest mortgage lender, is set to tap the equity market after a gap of 22 years with the IPO of its insurance business. After a failed attempt at merging the life insurance company, HDFC Standard Life, with Max Financial services, Deepak Parekh, chairman of HDFC, confirmed the deal with Max is off the table and the group is looking to list its mutual fund business in the first quarter of the next financial year. Edited excerpts:
The market reaction to some of the insurance firms’ listing has been subdued. Does that worry you?
It’s due to over-valuation. Now they say, you are doing an issue now, so you look at March 2018 numbers. Analysts are looking at March 2019 numbers. We hope we have left money on the table. We have priced it lower because there is fatigue in the market. Insurance firms have not done well.We need investors for more capital.
Would you still consider the merger with Max post listing?
The Max merger is off the table completely. We had written to Insurance Regulatory and Development Authority of India (IRDA). We have not mentioned a word in the prospectus. I have not met or talked to them since we broke off.
We had to make up our mind whether to continue or not because that was rejected because of technical reasons. The Insurance Act says that the insurance firm can only merge with another insurance company, not a holding company or a finance firm.
What was the complementarity that you saw in the Max deal?
Max didn’t have a bank in their stable. Yet, they have ▪ developed an excellent distribution network, which we have not. We have HDFC and HDFC Bank that bring us business. The urge or necessity for developing a full-time individual agency is limited. They have a much larger share of endowment policies rather than ULIPs. The team was good. Their concentration was largely north India. We have a higher distribution in western India. They didn’t want to merge the two insurance firms.
With the Max deal off the table, how would you look at filling the gaps within HDFC Life?
I feel consolidation is the next thing that will happen in insurance, because there are many small firms that are not doing well. There are 43-46 insurance firms today. There is a fair amount of consolidation which will happen. But it has to make sense, add value.
Would you look at listing your mutual fund business?
We are listing it in the first quarter.
India’s economy has slowed down due to the impact of demonetisation and GST. Does that worry you?
The 5.7% GDP growth (June quarter) was an aberration because of big bang reforms. Whenever there is reform, there is going to be a slowdown. It has happened all over the world. Expect the third and fourth quarter to be bumper quarters.
The government announced a ₹2.11 lakhcrore recapitalisation plan for public sector banks last week. Do you think this is enough to spur credit offtake?
That was necessary. You cannot have a strong economy with these banks. You can’t have a strong bank and a weak economy; they have to go side by side. All fundamentals are good in India. The Indian TARP (Troubled Assets Relief Programme) of ₹2.11 lakh crore is a two-year thing. So the government has taken care of not just current NPAs but future NPAs. This is a big bang reform.
With growth slowing down, do you think it’s time for the RBI to cut rates?
Containing inflation is the biggest challenge in India. RBI in its wisdom and the monetary policy committee gives satisfaction that it’s not a one-man’s decision. It’s a group of people who take decision on interest rate.