Chapter 12I: the single biggest regulatory error of independent India was to allow public deposits of tens of lacs of crores to be used for funding the real estate bubble. It has created a systemic risk like no other. Asset liability mismatch. Demand supply mismatch. Competition destruction. It is a complete disaster.
The very construct of the Universal Bank license was to keep the bank independent of specialised NBFCs like housing finance or car finance or msme funding . The entire logic was that these specialised funders would access bank finance for refinance and not as primary finance. This ensured three things – the specialised funders had enough equity, bubbles like real estate would not be created and public money would be safeguarded against cyclical trends in real estate prices.
A bigger macro purpose was to ensure that public savings were directed towards meeting national objectives and not towards consumption financing.
HDFC Bank had a housing finance company above it and a msme funding company below it. They had refused to follow the regulators dictat on taking HDB public or reducing their holding in it.
A merger of HDB and HDFC still had some synergies. Merging HDFC Ltd with HDFC Bank just made no sense for anyone.
Except for Citibank. They stood to make a super fortune based on the share swap ratio in HDFC Bank taking over HDFC Ltd. Nowhere in the world in the history of banking has a downstream bank taken over its NBFC holding company. It has no precedent. No one in HDFc Bank wanted this takeover. No one in HDFC Ltd wanted this takeover.
Both companies had a different culture. One was an ethical home grown conservative institution which was NOT founded or set up by Deepak Parekh. The other was Citibank with a new name. Run, controlled and indirectly owned by Citibank. It was a stock market scam like no other.
Banks of this size don’t ever get valued at 2.5 times of book value. This essentially assumes that each borrower will give back double of the principal in addition to paying full interest. This doesn’t ever happen. This is banking. Not venture capital.
Yet this merger hit no roadblocks. The legal system was overcooperative.
Citibank now became HDFC Bank plus HDFC Ltd. The cash reserves of Axis Bank were raided to sell the cancerous skeletons of Citibank India. Junk systemsway beyond useful life. Scores of staff incompetent to do anything but scams. Axis Bank is on stress. HDFC Bank won’t be around for long. Or should not be.
What was the Competition Commission doing ? Why did SEBI not intervene ? Why did the courts approve ?
It is a case of sedition like no other.
Deepak Parekh did not promote HDFC Ltd. He killed it to meet his commitments to his lord and master?
And what exactly was the quid pro quo ?
Why did jurists, regulators, commissions buy the intentionally spread rumour by Citibank that Deepak Parekh would soon be the next Finance minister of India.
Citibank sure wants him to.
But will he ??
