Given this spread, the top management feels that it may be better off running its various businesses as subsidiaries and consolidating the group's shareholding in them through a holding company. Under the plan, the core housing finance company (HDFC), HDFC Bank, the asset management company (AMC) and the life insurance outfit will turn into subsidiaries of a holding company. Standard Life of the UK is to hold 26 per cent in both the asset management and insurance companies.

If the new holding company structure is put in place, the stakes of foreign investors as well as domestic institutions and the public in HDFC will become indirect. Reason: the housing finance business would get subsidiarised as well.

In recent weeks, the market has been speculating on the prospects of HDFC Bank merging with the parent HDFC to form a "universal bank" once its merger with TimesBank is consummated. With HDFC's top brass expressing interest in growth through further mergers (possibly another profitable private sector bank), the chances of a merger with the parent institution will reduce.HDFC chairman Deepak Parekh, while hinting at the "possibility" of taking the holding company route, ruled out any major recast in the immediate future. "If we adopt the holding company concept, then there is no need for merger of the bank and the housing finance company. It is an either or situation...," Parekh said.

The housing finance major is closely looking at the operational issues that need to be tackled in case it finally decides to take the subsidiarisation route. One reason why the idea looks attractive is that the various business segments are regulated by different authorities. Eg: the AMC will be regulated by Sebi, the housing finance company by the National Housing Bank, the commercial bank by RBI and the insurance company by the Insurance Regulatory and Development Authority. However, if the government decides, at some future date, to have a common financial services regulator as in the UK, then the plan may have to be rethought. "We need to weigh all these issues before taking a decision," Parekh said.

For the near future, taking over another bank is high on Parekh's priority list. "We would like to take over another bank after we are able to digest the merger (of TimesBank with HDFC Bank)," Parekh said.

Parekh announced the merger of TimesBank with HDFC Bank in the last week of November. The merger, effective December 1, has catapulted the new generation private sector bank to second position after the State Bank of India in terms of market capitalisation.

Parekh also said that infotech would be one of the priority areas for the bank and the group. It plans a tieup with a leading media portal so that it can sell all its products on the net. Group operations across all segment, including mutual funds and insurance, will be synergised so that products can be cross-sold. The issue will come up for discussion at a forthcoming HDFC board meeting to he held in Mumbai on January 10.

The HDFC mutual fund, according to Parekh, will take off in the beginning of fiscal 2000 and the insurance business before the end of the current calendar year. HDFC will give a 26 per cent stake to Standard Life in the asset management arm, which will launch income as well as growth schemes before taking the plunge into real estate growth funds. HDFC has expertise in managing investments as it acts as advisor to two offshore funds-based in the US and the UK-with a total corpus of $70 million.

Parekh is bullish about the proposed forays into life insurance and asset management as HDFC can leverage its current customer base. The company has a 2.5 million-strong database accounting for 1.4 million borrowers, 1.1 million depositors, 1.28 lakh shareholders and 46,000 deposit agents. HDFC's deposit base is pegged at around Rs 5,500 crore while assets are to the tune of Rs 12,500 crore as in September 1999.

In contrast, post-merger, HDFC Bank will have 107 branches and the total retail banking and demat accounts will number over 6.50 lakh. The merged entity will have total deposits of Rs 6,900 crore with a combined balance-sheet footing of over Rs 9,000 crore. HDFC has become the first Indian financial major to have over 51 per cent foreign holding following the FIPB approval given to Warburg Pincus and Standard Life for picking up an additional five per cent each in HDFC under the foreign direct investment (FDI) category .