In a rare public disclosure, Deepak Parekh, the noted banker who was instrumental in building India’s largest private sector bank, has disclosed that ICICI Bank had once proposed him to merge HDFC Ltd with them.
The proposal came when the now disgraced Chanda Kochhar was helming ICICI Bank, Parekh said in a conversation with her on Youtube channel, without disclosing the date of the proposal.
After completing the $60 billion reverse merger of HDFC Ltd with the bank effective July 1, 2023, Parekh had hung up his boots as the chairman of the country’ first pureplay mortgage lender launched by his uncle HT Parekh.
During his chairmanship of HDFC Ltd, he first set up the bank in the early years of the 1990s, which went onto become the most successful lender under the leadership of Aditya Puri. Then they added life and non-life insurance company, a mutual fund and brokerage, two non-banking arms—the education loan arm Credilla (which was sold to a PE as part of the merger), and retail focused non-banking arm HDB Financial, which is hitting the street next on Wednesday with a `12,500 crore IPO, the largest public issue in the NBFC space.
Parekh said the proposal came years before the merger of the HDFC twins and came from Kochhar who was heading ICICI Bank. “I remember you talking to me once. I remember it very clearly. It’s never been talked about in public, but I'm willing to share it now. You said that ICICI started HDFC, so why don't you come back home?' That was your offer,” Parekh recounted the incident while speaking with Kochhar for her Youtube channel.
The veteran banker added that he politely declined the offer, saying, “It will not be fair or proper with our name and the bank and all.” The much-publicised reverse merger was finally completed on July 1, 2023, in an all-stock deal valued at $60 billion, making it the largest merger in the history of corporate India. This catapulted HDFC Bank as the largest private sector lender with assets almost double of ICICI Bank. But post-merger, ICICI Bank has outperformed HDFC Bank in key financial metrics like profit growth and net interest margin.
Parekh described the HDFC-HDFC Bank merger as a move driven by regulatory compulsions rather than business ambition after the Reserve Bank classified non-banking financial companies like HDFC—then managing assets exceeding `5 trillion—as systemically important, crossing the regulatory threshold of `50,000 crore. This had taken away all the benefits that being an NBFC would have had.
However, he was quick to note that “the RBI supported us and they pushed us into it to some extent but they helped us. But let me add, there were no concessions, no relief, no time, nothing.” Parekh also said the deal had been executed with extreme confidentiality. “It was kept a secret. No one knew about it—when it hit the press in the morning (of April 5, 2022), that’s when everyone found out. The government was aware of because the RBI was in touch with them, and we kept it so close—just lawyers, due diligence, accountants,” he said.
Reflecting on the conclusion of the merger, Parekh called it "a sad day and a happy day." “It’s good for the institution. It’s good for the country to have large banks. Look at how large Chinese banks are. We too need to have bigger, larger banks.” He also batted for consolidation in the banking sector to build globally competitive institutions. “Our banks must grow through acquisitions.”
He also expressed concerns about the insurance sector, calling it the “least understood product” in the country but also flagged his concerns about the growing incidents of “mis-selling by banks” driven by high upfront commissions.
On April 4, 2022, HDFC Bank announced its plan to acquire mortgage lender HDFC in a deal valued at about $40 billion, creating the second largest bank. The merger gave rise to a banking entity worth $172 billion affecting tens of millions of customers and shareholders across both companies, along with their group insurance and asset management operations.
While HDFC Bank had in April this year crossed the `15 trillion market capitalisation mark, a quieter shift has been unfolding in the private banking space. ICICI Bank has steadily pulled ahead of HDFC Bank on several key performance metrics and is now seen as a frontrunner among private sector lenders, while HDFC Bank is yet to fully come out of the after-effects of the merger.