Thinkpad: And, Finally...

Happy weekend.

This was a week bookended by big news. It started with a merger announcement between HDFC Bank Ltd and HDFC Ltd. It ended with the Reserve Bank of India pivoting.

Since we have whined a lot about the Indian central bank not doing what it ought to, we'll start with the latter.

The RBI got a few things right.

It raised its inflation forecast to a more believable level. It also dropped its resolve to keep monetary policy accommodative to "revive and sustain growth on a durable basis", perhaps saying: 'our work here is done.' Instead, it said it would remain accommodative but focus on withdrawal of accommodation to "ensure inflation remains within its target..."

In short, the RBI rediscovered its inflation dharma. Although it is still whispering the message rather than shouting from the rooftops.

The RBI has also effectively raised rates, albeit, once again, without saying so and in a convoluted way.

And it refrained from providing any specific assurance to support bond markets as a record year of government borrowings begins.

Bond yields surged in response to the highest since 2019 when the policy rate was about 200 basis points higher. For those wanting to understand where bond markets go from here, watch this conversation with Axis Bank's treasury head Neeraj Gambhir.

In short, the RBI, from being behind the curve, pivoted and did the right thing, we write.

RBI deputy governor Michael Patra, perhaps fed up with being told that the central bank is 'behind the curve', got his own back when he informed us all of the etymology of the phrase: It was coined for those who still believed the world is flat, Patra said, hoping that he never hears that lament again.

Moving on.

Here's another story where we said: 'And, finally!'

A long rumored merger between HDFC Bank and HDFC was announced. For many reasons, it was always assumed that the paths of the two organisations would eventually converge. But the timing never seemed right.

The timing is now right. Rates are low, regulations are converging and management structures are more conducive to a merger. Once done, HDFC Bank becomes a formidable #2.

But analysts see it as more beneficial for HDFC than for HDFC Bank and there is some fear that the latter will get bogged down with the integration process for the next two years as more nimble competitors forge ahead. HDFC Bank chief executive doesn't think so and says that 'elephants can dance'.

Mergers are confessions of failure to grow earnings on an organic basis, writes TT Ram Mohan. Is that the case here?

Between the lines, there is another message in the merger — that the heydays of the standalone housing financiers may be long past.

A much-needed holiday shortened week beckons. We hope you have exciting long weekend plans.

Till next week.