HDFC Bank plans to sell ₹10,000 crore of loans via rare debt instrument

India’s largest private lender HDFC Bank plans to sell as much as ₹10,000 crore ($1.2 billion) of loan portfolios using a rare debt instrument, as it seeks to cut exposure to certain sectors amid challenges in raising deposits, according to people familiar with the matter.

The bank is in talks with local asset managers including ICICI Prudential AMC, Nippon Life India Asset Management Ltd. and SBI Funds Management Pvt. to issue so-called pass through certificates, a route that has not been used in a decade by the bank, the people said, asking not to be identified as the discussions are private.

The Likely Process

The certificates, to be backed by a pool of the bank’s car loans, will likely be issued in multiple tranches in the next few weeks, the people said. The securities are expected to offer interest rate in the range of 8.3-8.5% to investors, they said.

The bank is trying to shrink its retail loan portfolio under heightened regulatory pressure in the banking industry to improve credit-deposit ratios — a measure of how much of a bank’s deposits are being lent out. The sale, if materialized, will help HDFC Bank improve its CD ratio which has worsened in recent years as credit growth outpaces deposit growth in the nation.

HDFC’s credit-deposit ratio stood at 104% at the end of March, higher than the level of 85%-88% seen in the previous three financial years, according to a report by ICRA Ltd., the local arm of Moody’s Ratings.

Kotak Mahindra Asset Management Co. is also talking to the bank on possible subscription of those securities, the people said.

HDFC Bank, SBI Funds, Nippon Life India, ICICI Prudential and Kotak did not reply to emails from Bloomberg News seeking comments.

Gap Between Credit and Deposits

HDFC Bank sold a ₹5,000 crore loan portfolio to an undisclosed buyer in June. The bank had last done such a transaction more than a decade ago, Chief Financial Officer Srinivasan Vaidyanathan said last month.

The “gap between credit and deposit growth rates warrants a rethink by the boards of banks to re-strategize their business plans,” the Reserve Bank of India said in June. Indian banks’ deposits grew 10.9% annually through Aug. 9, slower than loan growth of 13.6%, according to latest RBI data.

Finance Minister Nirmala Sitharaman and RBI Governor Shaktikanta Das have urged banks to find ways to increase their deposits. The RBI in particular has warned banks of potential liquidity issues and has called on them to use their vast networks to attract more savings.