HDFC Bank Ltd. has recently sold a housing loan portfolio valued at approximately 60 billion rupees ($717 million) as part of its strategy to alleviate its credit load
HDFC Bank Ltd. has recently sold a housing loan portfolio valued at approximately 60 billion rupees ($717 million) as part of its strategy to alleviate its credit load amidst increasing regulatory scrutiny in the banking sector. The transaction involved private deals with about six state-controlled banks, according to sources familiar with the situation who requested anonymity due to the confidential nature of the information.
In addition to the housing loans, the Mumbai-based bank has also divested a pool of car loans worth around 90.6 billion rupees, which were securitized as pass-through certificates. These car loans were sold to local asset management companies following negotiations reported by Bloomberg in late August.
These sales are part of HDFC Bank’s efforts to improve its credit-deposit ratio, a critical metric indicating the proportion of deposits being lent out. The bank’s ratio has come under pressure in recent years as credit growth has outpaced deposit growth, particularly following its merger with the Housing Development Finance Corporation (HDFC).
Notable investors in the pass-through certificates backed by HDFC’s car loans include ICICI Prudential Asset Management Company, Nippon Life India Asset Management, SBI Funds Management, and Kotak Mahindra Asset Management, with yields reported between 8.02% and 8.20% across three tranches.
An SBI fund spokesperson confirmed the car loan deal, but HDFC Bank and other involved asset management companies have not yet commented on the transactions.
HDFC Bank Limited is a leading banking and financial services institution based in Mumbai, recognized as India’s largest private sector bank by assets and the world’s tenth-largest bank by market capitalization as of May 2024. The Reserve Bank of India (RBI) has classified HDFC Bank, along with the State Bank of India and ICICI Bank, as a Domestic Systemically Important Bank (D-SIB), reflecting their significance in the financial system.
As of April 2024, HDFC Bank’s market capitalization stood at $145 billion, making it the third-largest company listed on Indian stock exchanges. The bank employs over 173,000 individuals, a figure that has increased following its merger with HDFC.
In June, HDFC Bank sold a loan portfolio worth 50 billion rupees as part of its liquidity management strategy. By the end of March, the bank’s credit-deposit ratio reached 104%, significantly higher than the 85% to 88% range seen in the previous three fiscal years, according to ICRA Ltd., an affiliate of Moody’s Ratings.
The RBI has warned that the current discrepancy between deposit and credit growth may pose structural liquidity challenges for the banking system. As HDFC Bank prepares to report its earnings for the quarter ending in September, analysts expect a deposit growth of around 13% year-on-year, compared to an 8% rise in loans, according to Suresh Ganapathy, head of financial services research at Macquarie Capital.
