HDFC Bank to Sell Rs.10,000 Crore Loan Portfolio Using Rare Pass-Through Certificates to Address Deposit Challenges
India’s largest private lender, HDFC Bank, is making a significant move to address its deposit challenges by planning to sell up to ₹10,000 crore (approximately $1.2 billion) worth of loan portfolios. This sale will use a rare financial instrument called pass-through certificates, a method the bank hasn’t employed in over a decade.
What Are Pass-Through Certificates?
Pass-through certificates are financial securities backed by a pool of assets—in this case, HDFC Bank’s car loans. The bank is looking to issue these certificates in multiple stages over the coming weeks. Investors can expect an interest rate between 8.3% and 8.5% on these securities.
Why Is HDFC Bank Selling These Assets?
HDFC Bank’s move to sell its loan portfolios is part of a strategy to reduce its exposure to certain sectors and improve its credit-deposit ratio. The credit-deposit ratio measures how much of a bank’s deposits are lent out. In recent years, HDFC Bank’s ratio has risen significantly, reaching 104% by the end of March. This is much higher than the 85%-88% range seen in the previous three financial years.
The high ratio indicates that the bank’s credit growth is outpacing its deposit growth, which has led to increased regulatory pressure. By selling these loan portfolios, HDFC Bank aims to lower its credit-deposit ratio, making its operations more balanced and compliant with regulatory expectations.
Who Is Interested in These Certificates?
The bank is in discussions with several local asset managers, including ICICI Prudential AMC, Nippon Life India Asset Management Ltd., and SBI Funds Management Pvt. Kotak Mahindra Asset Management Co. is also exploring potential involvement in the subscription of these securities.
Recent Developments
Just a few months ago, in June, HDFC Bank sold a ₹5,000 crore loan portfolio to an undisclosed buyer. This recent transaction follows a similar pattern, as the bank had last undertaken such a move more than a decade ago.
Regulatory Pressure and Deposit Growth
The Reserve Bank of India (RBI) has noted the growing gap between credit and deposit growth rates. According to the latest RBI data, while Indian banks’ deposits grew by 10.9% annually through August 9, loan growth surged by 13.6%. The RBI and Finance Minister Nirmala Sitharaman have emphasized the need for banks to boost their deposit collections and address potential liquidity issues.
In summary, HDFC Bank’s strategic sale of loan portfolios through pass-through certificates reflects its efforts to balance its financial metrics and respond to regulatory pressures, while also seeking to attract more savings in a competitive banking environment.
