HDB Financial Services – Serving the Underserved

25 Jun 2025 , 09:49 AM

HDB Financial Services is one of India’s leading NBFCs. It is a subsidiary of HDFC Bank – the largest private sector bank in India. With over 70% of branches in tier-4 towns and other rural areas, it specialises in lending in underserved areas. Investing in technology to deliver financial services at a low cost is among its USPs. Over the years, it has witnessed consistent revenue growth. However, FY25 had seen higher credit costs and a decline in RoE.

The IPO mostly consists of an offer for sale by its promoter entity – HDFC Bank. In addition, it also includes a fresh equity of equity shares.

 

Offer Details of the IPO

Fresh Issue and Offer for Sale

The IPO consists of a Fresh Issue and Offer for Sale, aggregating to a total of INR 125 billion (or INR 12,500 crore).

• Fresh issue of Equity Shares of face value of INR 10 each aggregating up to INR 25.0 billion
• Offer for sale of Equity Shares of face value of INR 10 each aggregating up to INR 100.0 billion by the Promoter Selling Shareholder, HDFC Bank Limited.
• Price Band: Rs. 700 to Rs. 740 per Equity Share
• BRLMs: JM Financial Limited, BNP Paribas, BofA Securities India Limited, Goldman Sachs (India) Securities Private Limited, HSBC Securities and Capital Markets (India) Private Limited, IIFL Capital Services Limited (formerly known as IIFL Securities Limited), Jefferies India Private Limited, Morgan Stanley India Company Private Limited, Motilal Oswal Investment Advisors Limited, Nomura Financial Advisory and Securities (India) Private Limited, Nuvama Wealth Management Limited, UBS Securities India Private Limited

Objectives of the IPO:

The primary use of the funds from the IPO is to augment the company’s Tier-I capital base to meet future capital requirements.

Industry Overview – NBFC

The Indian Non-Banking Finance Company (NBFC) industry had its origins in the 1960s, when the government acknowledged the requirement of alternative credit institutions to support the rapidly growing economy. The oldest NBFCs started life as purely private sector players providing credit for small and medium business (SMEs) and for the unbanked.

The NBFC sector has seen a rapid transformation over the years, with the emergence of modern products and services alongside a host of new regulations. In the 1980s, the Reserve Bank of India (RBI) Act provided the operational framework and regulated the NBFCs. This resulted in formation of numerous NBFCs, and the industry started to expand quickly..

Evolution of the Industry

The NBFC sector evolved rapidly in the 1990s. The emergence of new financial instruments and products expanded the market for NBFCs. This created more competition and NBFCs started concentrating on particular segments like housing finance, vehicle finance and micro finance.

The number of NBFCs grew steeply in the 2000s as many new players entered the industry. This resulted in fierce competition and NBFCs started to concentrate on innovation and technology to outpace one another..

Customers and Market Segments

The NBFC segment caters to a diverse spectrum of customers – Individuals, SMEs and corporates. The general categories into which the industry can be divided are::

• Retail finance: This type of finance products may include loans to individuals for personal use (e.g., housing loans, car loans, or personal loans).
• SME finance: This category consists of loans given to small and medium business enterprises.
• Wholesale finance: This category consists of loans to big companies.
• Microfinance: This part covers loans extended for personal and business purposes to poor and low-income individuals and household.

Other Important Details

• Regulation: The NBFC industry is regulated by the RBI, which provides a framework for the operation of NBFCs.
• Products and services: NBFCs offer a wide range of products and services, including loans, deposits, and investment products.
• Technology: The industry has witnessed significant adoption of technology, with many NBFCs using digital platforms to provide services to customers.
• Competition: The industry is highly competitive, with many players competing for market share.

Overall, the NBFC industry in India has evolved significantly over the years, with a growing customer base, increasing competition, and a focus on innovation and technology.

Industry Size & Growth

The Indian financial services industry has witnessed significant growth over the past few years, driven by increasing demand for financial products and services. The overall size of the market has expanded, with the industry’s assets under management (AUM) growing at a compound annual growth rate (CAGR) of 13.2% between FY19 and FY25.

Market Size

As of FY25, the Indian financial services industry’s outstanding portfolio stood at INR 124 trillion, with NBFCs accounting for 26% of overall portfolio. Amongst the asset classes NBFCs have a significant presence in auto, microfinance and consumer durable loans. On the other hand, they have the lowest market share in gold loans and housing loans.

Segment Growth

For the overall industry, the housing loan market has grown at a CAGR of 13.1% between FY20 and FY25, while the auto loan market has grown at a CAGR of 14% during the same period. The personal loan market has also witnessed significant growth, with a CAGR of 21% between FY20 and FY25. The fastest growing segment, however, has been Gold loans which have grown at a CAGR of 37%.

NBFCs have witnessed faster growth in all of the segments except housing and auto loans. The growth in auto loans has been similar while housing loans have grown at a lower pace than the overall industry

Figure: Breakdown of growth across segments

Asset Class	Outstanding (INR trillion)	Share of NBFCs and HFCs	Overall Portfolio CAGR	NBFC Portfolio CAGR	FY26 Outlook for Overall Portfolio	FY26 Outlook for NBFC
MSME Loans	42.3	27.0%	18.2%	19.6%	18-20%	27-29%
Housing Loans	38.1	20.0%	13.1%	11.3%	13-14%	15-16%
Auto Loans	12	46.0%	14.0%	14.0%	15-16%	16-17%
Personal Loans	14.6	24.0%	21.0%	30.0%	16-18%	22-24%
Gold Loans	12.4	11.0%	37.0%	54.0%	19-21%	17-18%
Microfinance Loans	3.8	51.0%	10.0%	16.0%	8-10%	8-10%
Consumer Durables	0.8	68.0%	17.0%	21.0%	18-20%	20-22%

Source: RHP

 

Key Driving Factors

The growth of the Indian financial services industry can be attributed to several key factors, including:

• Increasing Demand for Financial Products: Growing demand for financial products and services, particularly in the retail segment, has driven the growth of the industry.
• Government Initiatives: Government initiatives such as the Pradhan Mantri Jan Dhan Yojana (PMJDY) and the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) have contributed to the growth of the industry by increasing financial inclusion and access to financial products.
• Digitalization: The increasing adoption of digital technologies has made it easier for customers to access financial products and services, contributing to the growth of the industry.
• Economic Growth: India’s economic growth has also contributed to the growth of the industry, as increasing incomes and economic activity have driven demand for financial products and services.

Company Overview – HDB Financial Services

HDB Financial Services Limited (HDB) was established in 2007 as a non-banking financial company, promoted by HDFC Bank Limited, the largest private sector bank in India. The institution started functioning in 2008 and has developed into one of the premier non-banking financial companies (NBFCs) in India.

Business Segments and Products

The business of HDB is broadly divided into three segments: Enterprise Lending Business, Asset Finance Business, and Consumer Finance Business.

• Enterprise Lending: The division provides a suite of secured and unsecured loans to MSMEs as well as to salaried employed individuals. The segment is well-established in the MSME lending market and provides loans for multiple use-cases–working capital, business expansion, and equipment purchase.
• Asset Finance: This division provides finance for new and used commercial vehicles, and tractors and construction equipment. The segment has a dominant position in the commercial vehicle financing market and caters to loans for fleet owners, first-time users, and captive users.
• Consumer Finance: This division provides various consumer loans (such as personal and gold loans, as well as loans against property). The category is well-represented in consumer lending and its loans cover a spectrum of uses, including personal, education, and home improvement-related expenses.

Services

Aside from its loan products, HDB also provides the following services:

• Collection Services: HDB offers its customers collection services which include tele-calling, online collection, and field collection.
• Digital Services: HDB provides a lineup of digital services – online loan application, digital KYC, and online payment.
• Customer Support: HDB has its own customer support team, who helps the customer quickly through phone, email, and online chat.

Technology and Digitalization

HDB has made significant investments in technology and digitalization to enhance its operations and customer service. The company has created a bouquet of digital platforms, such as a mobile app, online portal, and digital KYC system. Customers can remotely and conveniently transact with HDB through these channels.

Expansion and Growth

Today, HDB’s business has grown substantially from its early days. The company has expanded its loan book from INR 70,030 crore in FY2013 to INR 1,06,880 crore in FY2025, representing a CAGR of 23.54%. The bank has also increased its network by the number of branches from 1,492 branches in FY13 to 1,771 branches in FY2025.

In summary, HDB Financial Services Limited is a leading NBFC with a presence in the MSME lending industry and a well-servicing consumer lending franchise in India. The firm’s increasing use of technology and digitalization have helped it in enhancing its operational efficiency and customer experience, and this trend is expected to continue in the future and provide it with opportunities for growth.

Competitive Landscape

The company operates in a highly competitive financial services industry, with several major players competing for market share. The major competitors in the industry include:

• Aditya Birla Finance Limited: A leading non-banking financial company in India, offering a range of financial products and services.
• Bajaj Finance Limited: A well-established player in the Indian financial services industry, offering a wide range of financial products and services.
• Cholamandalam Investment and Finance Company Limited: A leading non-banking financial company in India, offering a range of financial products and services.
• L&T Finance Limited: A major player in the Indian financial services industry, offering a range of financial products and services.
• Mahindra & Mahindra Finance Limited: A leading non-banking financial company in India, offering a range of financial products and services.
• Shriram Finance Limited: A well-established player in the Indian financial services industry, offering a range of financial products and services.
• Sundaram Finance Limited: A leading non-banking financial company in India, offering a range of financial products and services.
• Tata Capital Limited: A major player in the Indian financial services industry, offering a range of financial products and services.

Competitive Positioning

The company has a strong competitive positioning in the industry, with a diversified product portfolio and a wide distribution network. However, the company faces intense competition from its peers, particularly in terms of pricing and product offerings.

Diversified Product Portfolio

The company has a rich suite of 13 products, covering the 3 business verticals of Enterprise Lending, Consumer Finance, and Asset Management. This diversification has enabled the company to cater to a wide range of customer needs and aspirations, including those of underbanked customers.

• Enterprise Lending: The firm provides different types of secured and unsecured loans to its MSME customers and a few categories of salaried employees.
• Asset Finance: It offers financial solutions for buying new and old commercial vehicles, construction equipment, and tractors.
• Consumer Finance: The company is engaged in the business of personal loans, gold loans, loans against consumer durables, and digital products.

Robust Risk Management Framework

The company has a strong risk management system, which has helped it maintain good credit quality even in challenging macroeconomic environments. The firm’s credit underwriting and collections practices are highly data-driven, with an emphasis on utilizing a variety of external and internal customer data sources to underwrite.

• Credit Underwriting: The company utilizes a hybrid credit model, including a centralized credit review and underwriting center that handles underwriting for Consumer Finance products and distributed regional and branch-level credit reviews and local underwriting teams, in the case of Enterprise Lending and Asset Finance products.
• Collections: The firm has an in-house collections team that aims to leverage technology and data analysis to enhance collection efficiency.

Strong Distribution Network

The company possesses a robust distribution network with a pan-India coverage targeting the underbanked. The business’s distribution network is fairly balanced, with over 80% of branches situated outside India’s 20 most populous cities.

• Branch Network: The company has a network of 1,771 branches all over the country in more than 1,170 Indian towns and cities situated in 31 States and Union Territories.
• Digital Distribution: The firm is expanding its external digital distribution channels, such as through fintechs and in-house digital distribution channels.

Financial Performance

Revenue Growth: Consistent growth

The company reported a PPOP increase of 13% over FY23-25. The growth largely comes from the company’s ability to expand its customer base and increase its loan book. The growth of the firm’s earnings is determined by its capacity to expand its loan portfolio and customer base.

Profit Growth: A Mixed Bag

While the company has had consistent revenue growth, profits have been mixed. Notably, there was an 11.58% decline in the company’s net income in FY 2025, which came in at INR 21,759.2 million. The decrease in income has been primarily blamed on a rise in credit costs and a hit to financial instruments. This had also impacted its ROE.

Figure: Peer Comparison

Company Name	Revenue FY25 (INR million)	P/E Ratio	P/B Ratio	EPS (Diluted)	ROE (%)	Net Asset Value per share (INR)
HDB Financial Services Limited	163,002.80	27.1*	3.72*	27.30	14.72	198.80
Bajaj Finance Limited	696,835.10	34.30	5.90	26.82	19.35	155.60
Sundaram Finance Limited	84,856.30	28.10	4.00	170.53	15.48	1,187.80
L&T Finance Limited	159,242.40	17.90	1.80	10.57	10.79	102.50
Mahindra & Mahindra Financial Services Limited	184,631.00	14.50	1.70	18.31	10.91	154.90
Cholamandalam Investment and Finance Co. Ltd	258,459.80	31.40	5.60	50.60	19.71	281.50
Shriram Finance Limited	418,344.20	13.00	2.20	50.75	18.17	300.30

Source: RHP; * Based on upper end of price band

 

Figure: Summary Financials

Metric	Period Ending March 31, 2023	Period Ending March 31, 2024	Period Ending March 31, 2025
Revenue	89,277.80	111,567.20	138,357.90
PAT	19,593.50	24,608.40	21,759.20
RoE	18.68%	19.55%	14.72%

Source: RHP