HDFC Bank Securitises Rs 24,600 Cr in Assets to Cut Loan-to-Deposit Ratio, Bernstein Sees Slower Loan Growth Ahead

Mumbai: HDFC Bank, India’s largest private sector lender, has sold loan pools worth Rs 24,600 crore in the last nine months to bring down its loan-to-deposit ratio (LDR). In the July-September quarter alone, the bank sold loans worth Rs 19,200 crore. The bank called this move part of its long-term plan to manage its financial health.

Strategic Move to Manage Loan Growth

“During the quarter ending September 30, 2024, we sold loans of Rs 19,200 crore, and in total for the year so far, Rs 24,600 crore as part of our strategic initiative,” HDFC Bank mentioned in a filing.

One of the major transactions included selling a large car loan pool worth over Rs 9,000 crore to a trust.

Impact on Loan Growth and LDR Normalisation

Financial experts believe this move will help the bank reduce its loan growth rate and speed up the process of normalising its LDR. This means the bank’s ratio of loans to deposits will balance out faster than expected. According to Pranav Gundlapalle, head of India financials at Bernstein, earlier predictions suggested the LDR would normalise in three years, but this recent sale of loans will allow the bank to keep disbursing loans without significantly increasing its loan growth on the balance sheet.

Part of a Larger Plan to Improve Financial Health

This sale is part of HDFC Bank’s efforts to manage its balance sheet and improve its net interest margin (NIM). Other steps include slowing loan growth, replacing old borrowings from HDFC Ltd. with infrastructure bonds, and paying down loans faster. The bank’s LDR, which reached a high of 110%, has already come down to 103.5% and is expected to decrease further.

Long-Term Goals and Expert Opinions

Param Subramanian, an analyst at Nomura, noted that while the bank’s LDR target of 91% by FY27 is lower than before, it’s still higher than the pre-merger target of 85-87%. He also added that selling loans will help resolve LDR issues faster and improve profitability, though it may put pressure on earnings per share (EPS) and return on equity (RoE) in the short to medium term.

Current Loan-to-Deposit Ratio of Indian Banks

As of August 9, 2024, the overall loan-to-deposit ratio of Indian banks stood at 77.2%, slightly below the all-time high of 78.8% in September 2013. The LDR is an important measure of a bank’s liquidity, comparing its total loans to its total deposits. A high LDR can indicate potential liquidity problems for a bank.