HDFC seeks documentary proof for withdrawals

MUMBAI: As surging deposit rates and the March-end battle for deposits among banks gives rise to arbitrage possibilities,HDFC is tightening its scrutiny of requests for premature withdrawals.

There has been speculation that if interest rates continue to harden and the pressure on deposits remains, HDFC may be compelled to revisit the much talked about option of a merger with HDFC Bank next year. However, HDFC officials insist that the institution’s present business model is highly sustainable and is better placed than a bank in extending long-term loans.

This year HDFC has increased its reliance on deposits and repaid some of the institutional borrowings. HDFC recently did a Rs 1,000 crore securitisation to improve the fund position. Its access to cheaper foreign money may be limited since banks and housing finance companies are not allowed external commercial borrowings.

HDFC has been allowing premature withdrawal where the depositor faces an unexpected financial need. However, with rates soaring in the market depositors who had locked in for three years at 7% are submitting withdrawal requests. “All of a sudden, there has been a sharp demand for premature withdrawals on grounds of a medical emergency or a marriage in the family,” sources said.

Unlike banks, HDFC receives a large number of high-value deposits. But these deposits are interest rate sensitive, though HDFC mentions that premature withdrawal will be at the sole discretion of the corporation. HDFC has responded by asking for documentary proof of the emergency.

Unlike banks, HDFC which follows NBFC norms for deposit mobilisation has far less flexibility for premature withdrawal. NBFC norms bar premature withdrawal up to three months. But there is a provision which allows the company from using its discretion in the case of an emergency to allow premature withdrawals after imposing a small penalty.

Since NBFCs do not have statutory liquidity ratio requirement nor cash reserve ratio, the restrictions on premature payment are tighter than banks.