HDFC Bank Uses Rare Debt Tool for $1.2B Sale

30 Aug 2024 , 01:56 PM

According to news reports, HDFC Bank Ltd., intends to sell up to Rs 10,000 ($1.2 billion) of loan portfolios using a unique debt instrument in order to reduce exposure to particular sectors despite difficulty in attracting deposits.

The bank is in talks with local asset managers such as ICICI Prudential AMC, Nippon Life India Asset Management Ltd., and SBI Funds Management Pvt. Ltd. to issue so-called pass-through certificates, a route the bank has not used in a decade, according to the reports.

The certificates, which will be backed by a pool of the bank’s car loans, are expected to be given in several tranches over the next few weeks, according to the reports. Investors can receive interest rates ranging from 8.3 to 8.5% on the instruments, according to the report.

The bank is attempting to reduce its retail loan portfolio in response to increased regulatory pressure in the banking industry to enhance credit-deposit ratios, which measure how much of a bank’s deposits are lent out. If completed, the sale will help HDFC Bank improve its CD ratio, which has deteriorated in recent years as loan growth outpaces deposit growth in the country.

According to a study by ICRA Ltd., Moody’s Ratings’ local arm, HDFC’s credit-deposit ratio was 104% at the end of March, up from 85%-88% in the preceding three financial years.

According to news reports, Kotak Mahindra Asset Management Co. is also in talks with the bank about possible subscriptions to those securities.

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