In a bid to reduce its exposure to certain sectors and improve its credit-deposit ratio, HDFC Bank is planning to sell up to $1.2 billion (Rs 10,000 crore) of its loan portfolios using a rare debt instrument called pass-through certificates. This move marks a departure from the bank’s usual practices, as it hasn’t used this route in over a decade.
According to sources familiar with the matter, the bank is in talks with local asset managers, including ICICI Prudential AMC, Nippon Life India Asset Management, and SBI Funds Management, to issue these certificates. The securities will be backed by a pool of car loans and are expected to offer interest rates between 8.3% and 8.5% to investors.
This sale is part of HDFC Bank’s efforts to shrink its retail loan portfolio amid heightened regulatory pressure to improve credit-deposit ratios. The bank’s credit-deposit ratio has worsened in recent years, standing at 104% at the end of March, compared to 85%-88% in the previous three financial years.
By offloading these loans, HDFC Bank aims to improve its liquidity and reduce its reliance on deposits. The move comes as Indian banks face challenges in raising deposits, with loan growth outpacing deposit growth. The Reserve Bank of India has warned banks of potential liquidity issues and urged them to increase their deposits.
HDFC Bank’s plans to sell its loan portfolios using pass-through certificates are a significant development in the Indian banking sector. If successful, this move could set a precedent for other banks to follow suit.
(Courtesy The Economic Times)
