HDFC Bank Taps Rare Debt Tool to Offload ₹10,000 Crore in Loans Amid Deposit Challenges

HDFC Bank, India’s largest private lender, is planning to sell up to ₹10,000 crore ($1.2 billion) of its loan portfolios using a seldom-used debt instrument. The move is aimed at reducing its exposure to certain sectors while addressing challenges in raising deposits, according to sources familiar with the matter.

The bank is currently in talks with local asset managers, including ICICI Prudential AMC, Nippon Life India Asset Management Ltd., and SBI Funds Management Pvt., to issue what are known as pass-through certificates (PTCs). These certificates, backed by a pool of the bank’s car loans, will likely be released in multiple parts over the next few weeks, offering investors an interest rate of 8.3% to 8.5%, the sources said. The discussions are private, so the sources requested anonymity.

HDFC Bank is looking to reduce its retail loan portfolio as the banking industry faces increased regulatory pressure to improve credit-deposit ratios. This ratio measures how much of a bank’s deposits are being lent out. If the sale goes through, it will help HDFC Bank improve its CD ratio, which has deteriorated in recent years as credit growth outpaces deposit growth.

At the end of March, HDFC’s credit-deposit ratio stood at 104%, up from the 85%-88% range seen in the previous three financial years, according to ICRA Ltd., the Indian arm of Moody’s Ratings.

Kotak Mahindra Asset Management Co. is also in talks with HDFC Bank about potentially buying some of these securities, the sources added.

Neither HDFC Bank nor the mentioned asset management companies responded to Bloomberg News’ requests for comments.

In June, HDFC Bank sold a ₹50 billion loan portfolio to an undisclosed buyer, marking its first such transaction in over a decade. The bank’s Chief Financial Officer, Srinivasan Vaidyanathan, confirmed this last month.

The Reserve Bank of India (RBI) has noted that the growing gap between credit and deposit growth rates requires banks to rethink and adjust their business strategies. As of August 9, deposits in Indian banks grew by 10.9% annually, while loans grew by 13.6%, according to the latest RBI data.

Finance Minister Nirmala Sitharaman and RBI Governor Shaktikanta Das have urged banks to find new ways to increase their deposits, with the RBI particularly emphasizing the need to avoid potential liquidity issues and to leverage their extensive networks to attract more savings.