HDFC Bank Ltd., the largest private sector lender in India, is working on a significant financial move. The bank is negotiating with several global financial institutions to sell up to Rs 8,400 crore (about $1 billion) in loans. This strategy aims to reduce the bank’s credit book and better align it with its deposit levels.
Who’s Involved?
HDFC Bank is in talks with several prominent banks, including Barclays Plc, Citigroup Inc., and JPMorgan Chase & Co. Additionally, ICICI Bank Ltd. is also part of these discussions. The loan sale would be conducted through a financial instrument known as pass-through certificates. However, the exact terms of these deals are still being worked out.
Why the Sale?
Indian banks are facing increasing regulatory pressure to improve their credit-to-deposit ratios. This ratio measures how much of a bank’s deposits are being lent out to borrowers. HDFC Bank’s ratio has worsened recently because its loan growth has exceeded its deposit growth.
The sale of these loans is expected to help HDFC Bank improve its credit-to-deposit ratio. As of the end of March, this ratio stood at 104%, which is higher than the 85% to 88% range observed in the previous three years. This increase came after HDFC Bank’s merger with Housing Development Finance Corp., a major mortgage lender.
Additional Moves
HDFC Bank is also exploring other options to manage its loan portfolio. The bank is in talks with local asset management companies to potentially sell up to Rs 10,000 crore in loans. Earlier this year, HDFC Bank sold a Rs 5,000 crore loan portfolio to an undisclosed buyer.
Current Financial Snapshot
As of June 2024, HDFC Bank’s gross advances amounted to Rs 24.9 trillion, reflecting a 52.6% increase from the previous year. In comparison, deposits at Indian banks grew by 11% annually through August 23, while loan growth was 14%. The Reserve Bank of India has highlighted that this slower growth in deposits compared to loans could lead to potential liquidity issues in the banking system.
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