India's Largest Lender HDFC Bank Gears Up For Rs 9,000 Crore Loan Sale By September; Says Report

India's largest private lender, HDFC Bank, is on the verge of finalizing its biggest loan sale to date, with plans to sell loans worth over Rs 9,000 crore ($1.08 billion) by the end of September, according to a Reuters report. This massive loan sale, structured through pass-through certificates (PTCs), marks a milestone for the bank as it aims to strengthen its balance sheet following its merger with Housing Development Finance Corp (HDFC) in July 2023.

The merger with HDFC has added a substantial portfolio of mortgage loans to HDFC Bank's existing loan book, significantly boosting its lending capabilities. However, the merger also exposed a key challenge: a relatively smaller deposit base. The need for a larger deposit base has put pressure on the bank to either rapidly increase deposit growth or curb its lending activities.

To address this challenge, HDFC Bank plans to issue pass-through certificates backed by a pool of car loans. By selling these loans to a broad group of investors, the bank aims to maintain its loan growth without overburdening its deposit base. The issuance of PTCs allows the bank to transfer the risk and reward of the loan pool to investors while freeing up capital for further lending.

India Ratings has assigned a provisional AAA(SO) rating to the pass-through certificates issued by HDFC Bank. The top-tier rating reflects the high-quality nature of the underlying assets, including the bank's strong origination, servicing, collection, and recovery capabilities. As of August 31, the collateral pool backing the certificates had an outstanding loan value of Rs 9,062 crore. The pool primarily consists of car loans, which have historically shown lower default rates compared to other loan segments.

This high rating is expected to attract a diverse set of investors. According to one of the sources, the bank has already secured commitments from a range of investors, including mutual funds, corporate entities, and non-banking financial companies (NBFCs), all of whom are keen to subscribe to these PTCs.

The pass-through certificates will be divided into three tranches, with varying maturity periods. The first tranche, amounting to Rs 3,500 crore, will mature in September 2026. The second tranche, worth Rs 1,800 crore, will mature in July 2027, while the final tranche, totalling Rs 3,762 crore, will mature in September 2030.

The issuance of PTCs is not a new strategy for HDFC Bank, but this particular transaction is notable for its scale. By selling over ₹90 billion in loans, the bank is taking decisive steps to address the imbalance between its loan growth and deposit mobilization, a challenge that has intensified since its merger with HDFC.

*Inputs from Reuters*