HDFC Bank considering selling loan portfolio due to examination of growth

HDFC Bank Ltd. is considering selling a loan portfolio, as per sources, due to increased regulatory attention on the country's lenders amidst a rise in credit growth. The largest private bank in India has reached out to public sector lenders, non-banking financial institutions, insurance companies, and asset managers to join in the sale, according to anonymous sources.

The Reserve Bank of India is examining the credit-deposit ratio of banks, which indicates how much of their deposits are being used for loans, as it has reached a ten-year peak in the country's industry. Selling a portion of its loan portfolio could assist HDFC in reducing its debt after it rose due to the 2023 merger with parent company HDFC Ltd., and it may also improve the company's liquidity.

In India, loans are increasing at a much faster rate than deposits, as the economy grows towards 8%, putting pressure on bank decision-makers to manage emerging financial risks. The Central Bank of India has requested banks to increase reserves for certain consumer loans to control growing risks.

According to data from RBI, the credit-deposit ratio in the banking sector reached 80.3% in March, the highest in ten years. Since then, the situation has improved, but the rate is still high at 77.9% as of June 14. According to the most recent RBI data, bank deposits in India increased by 12.6% annually until June 14, while loans grew by 19.2%.

According to a report by ICRA Ratings, HDFC's credit-deposit ratio peaked at 110% post-merger but has now decreased to 104% at the end of the last fiscal year, still higher than the average of 85%-88% forecasted for fiscal years 2021 through 2023.

The company's overall loan portfolio grew by approximately 53% to 24.87 trillion rupees by the end of June, while deposits only expanded by 24% during that time frame.