HDFC Bank Considering Loan Portfolio Sale Amid Growth Scrutiny: Report

By Saikat Das and Preeti Singh

HDFC Bank, India’s largest private sector bank, is contemplating the sale of a portion of its loan portfolio. This decision comes in response to increased regulatory scrutiny on the country’s lenders due to a surge in credit growth.

Historical Context: HDFC Bank, established in 1994, has grown to become a significant player in India’s banking sector. The bank’s recent merger with its parent company, HDFC, in 2023, has further solidified its position. However, this merger has also led to an increase in the bank’s credit-deposit ratio, drawing attention from the Reserve Bank of India (RBI).

Current Developments:

• HDFC Bank has approached public-sector lenders, non-banking financial companies, insurance companies, and asset managers to participate in the sale of its loan portfolio.
• The credit-deposit ratio, a measure of how much of a bank’s deposits are being lent out as loans, has reached a decade high, prompting scrutiny from the RBI.
• The sale of the loan portfolio aims to reduce this ratio and improve the bank’s liquidity following the merger.

Market Reactions:

• Shares of HDFC Bank experienced a significant drop after the bank reported flat sequential deposit performance for the quarter ending in June.
• The banking industry in India is facing pressure to address potential financial risks due to the faster growth of loans compared to deposits. The RBI has advised banks to raise buffers for some consumer loans to mitigate evolving risks.

Statistical Insights:

• As of March, the banking industry’s credit-deposit ratio stood at 80.3%, a decadal high. This has slightly eased to 77.9% as of June 14.
• Bank deposits in India grew by 12.6% annually through June 14, while loan growth was at 19.2%, according to the latest RBI data.
• HDFC Bank’s credit-deposit ratio peaked at 110% post-merger but has since decreased to 104% by the end of the last financial year. This is still above the average ratio of 85-88% observed from 2020-21 to 2022-23.
• The bank’s total loans expanded by approximately 53% to Rs 24.87 trillion by the end of June, compared to a 24% increase in deposits during the same period.

Summary:

• HDFC Bank is considering selling part of its loan portfolio due to regulatory scrutiny.
• The bank has approached various financial entities for the sale.
• The credit-deposit ratio has reached a decade high, prompting RBI’s attention.
• The sale aims to reduce the credit-deposit ratio and improve liquidity.
• HDFC Bank’s shares fell after reporting flat deposit performance.
• The banking industry is under pressure to address financial risks due to faster loan growth compared to deposits.
• HDFC Bank’s credit-deposit ratio remains above the industry average post-merger.

Bullet Points:

• HDFC Bank is considering selling part of its loan portfolio.
• The decision is driven by regulatory scrutiny due to high credit growth.
• The bank has approached public-sector lenders, NBFCs, insurance companies, and asset managers.
• The credit-deposit ratio has reached a decade high, prompting RBI’s attention.
• The sale aims to reduce the credit-deposit ratio and improve liquidity.
• HDFC Bank’s shares fell after reporting flat deposit performance.
• The banking industry faces pressure to address financial risks due to faster loan growth compared to deposits.
• HDFC Bank’s credit-deposit ratio remains above the industry average post-merger.