Govt concerned over China’s central bank raising stake in HDFC

NEW DELHI: The government has taken note of China’s central bank raising its stake in Housing Development Finance Corporation Limited (HDFC), India’s largest mortgage lender, and is unhappy no red flag was raised over it, according to a source familiar with the development.

HDFC informed the stock exchanges Saturday about People’s Bank of China (PBOC) raising its stake to 1.01% from 0.8%. Even as there is no law barring investment by the Chinese central bank in any Indian entity, the news has ruffled a few feathers in the finance ministry.

PBOC’s 1.01% stake comprises 17.49 million shares of HDFC. The lender wasn’t required by law to disclose the Chinese central bank’s 0.8% stake in it but with the 1% threshold breached, the home loan lender has complied with the regulations. It was a secondary market transaction and thus HDFC had no role in the deal.

“No less an institution than a central bank of the world’s second largest economy has bought a stake in one of India’s largest financial institutions. Normally, there would be no need for xenophobic hysteria over this but a central bank buying an equity stake in a commercial entity is unusual. No red flag was raised,” the source said, adding it had caught the attention of the top echelons in the finance ministry.

Sovereign-backed institutions like Temasek and Abu Dhabi Investment Authority are big investors in Indian markets, holding significant stakes in Indian companies. Central banks themselves, highly regulated as they are, also buy bonds of highly rated companies in other countries but taking an equity stake is not a usual activity for a central bank.

The shares of HDFC closed 9.2% higher at Rs1701.95 apiece on the BSE, while the benchmark Sensex closed 4.2% higher at 31,159.62 points in Thursday’s trading session.

As per HDFC's closing price on the BSE on Thursday, the Chinese central bank's stake is worth Rs2,976 crore. The mortgage lender's equity base comprises 1.73 billion equity shares. Stock exchanges were closed for trading on 10 April on account of Good Friday.

HDFC is India’s largest non-banking mortgage provider in the private sector. According to an investor presentation on its website, it had Rs5054.01 billion in gross loans at the end of December.