HDFC Bank, one of India’s leading private lenders, has announced plans to securitise ₹12,372 crore worth of car loans and offer them to mutual funds. This step is part of the bank’s effort to manage its balance sheet more efficiently and bring its credit-deposit ratio closer to industry standards. The ratio currently stands at 100%, which is significantly higher than the industry average of 80%.
In simple terms, securitisation is when a bank bundles its loans and sells them as investment products to other financial institutions, like mutual funds. For HDFC Bank, this strategy allows it to reduce its loan burden and improve financial ratios, especially after its merger. By selling loans in this way, the bank frees up capital, lowers risks, and maintains a healthy balance sheet, ensuring it stays competitive in the banking sector.
This move also helps the bank manage liquidity while maintaining growth, benefiting both the bank and its investors.
Key Details
Securitisation and Issuance
This initiative represents HDFC Bank’s second pass-through certificate (PTC) issuance this financial year. The PTCs, rated AAA (SO) by India Ratings and Research, will be structured in three tranches with maturities in 2026, 2027, and 2030.
Loan Pool Overview
The loan pool supporting the PTCs consists of around 1.83 lakh car loans. These loans have a weighted average seasoning of 17.5 months and an amortisation rate of 23.3%, indicating a solid repayment history. The weighted average interest rate on the loans is 8.91%. The PTCs will be offered at an attractive rate of 8.3%–8.4%, aligning with similar issuances earlier in September.
Why is HDFC Bank Securitising Loans?
The merger with Housing Development Finance Corporation in July 2023 increased HDFC Bank’s credit-deposit ratio to 110%. To bring it down and align with the industry average, the bank is leveraging asset sales as a strategy.
Recent Steps Taken by the Bank
- Loan Sales: In the July-September quarter, the bank sold loans worth ₹19,000 crore through direct assignment.
- Upcoming Sales: It is reportedly preparing for an additional ₹60,000–₹70,000 crore loan sale through the same route.
These measures are aimed at reducing the bank’s reliance on deposits for lending and managing liquidity effectively.
Financial Performance
As of September 2024:
- Deposits grew by 15% year-on-year, reaching ₹25 lakh crore.
- Loan Book grew by 7%, amounting to ₹24.95 lakh crore.
HDFC Bank’s stock is trading at ₹1,740.00, reflecting a 3% gain year-to-date and a 15% increase over the past year, indicating investor confidence in the bank’s strategies.
