HDFC puts on sale car loans worth ₹12,000 Crore

25 Nov 2024 , 09:17 AM

HDFC Bank is in the final stages of assigning a ₹12,372 Crore car loan portfolio, its second such transaction in two months as it strives to reduce its credit-deposit ratio (CDR).

India Ratings & Research, a Fitch affiliate, has issued a AAA rating to India Universal Trust AL2, through which the loans were securitized.

HDFC Bank is the originator of loans made before October 31, 2024, with an average tenure of 17.5 months and an original loan-to-value of 84%.

The average balance in the loan pool is ₹6.76 Lakh, with an internal rate of return of 8.91%. HDFC Bank will continue to service and collect the loans throughout their respective tenures.

This is the second occasion in two months that the bank has securitized its car loan book for institutional investors to reduce its high credit-to-deposit ratio. In September, the bank issued a similar securitization of ₹9,062 Crore in car loans, which were likewise rated AAA by India Ratings.

Asset-backed securities (ABSs) are financial instruments backed by income-generating assets such as mortgages, credit card receivables, or automobile loans.

ABSs are established when an originator pools loans into a single instrument that is then offered to investors. Mutual funds, credit funds, and insurance firms may be interested in purchasing securitized loans that pay a consistent stream of fixed interest, similar to bonds.

These assets will be shown as an off-balance sheet item for the bank, allowing it to cut its CD ratio, which was 100% at the end of September, up from 87% pre-merger but down from 110% after its patent HDFC merged with it in July last year. A high CD ratio suggested that the bank’s loan growth was outperforming its deposits, which is considered dangerous for a bank.

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