HDFC Bank is in discussions with credit funds to divest 20% of HDB Financial

HDFC Bank Ltd is in preliminary discussions with private credit funds to offload a portion of its lending arm set to go public. As of March 31, HDB Financial, in which HDFC Bank holds a 94.64 percent stake, had a loan book worth more than Rs 90,000 crore. The non-bank lender, mainly targeting retail customers, is seeking a relatively high valuation, around 4-5 times the book value. HDB's book value per share for FY23 was Rs 144.52, with shareholders' funds totaling Rs 11,437 crore. Nevertheless, the financial sector, including the market leader Bajaj Finance, has experienced lower valuations.

One of the individuals mentioned above, who also chose not to reveal their identity, stated that the prices HDB is looking for might be costly given the current situation Yet, the promoter (HDFC Bank in this instance) conducting secondary share sales is viewed as a crucial progression before the initial public offering, as it aids in determining the entity's market value. Per RBI regulations for NBFCs, HDB Financial needs to be publicly listed by October 2025.

Extensive Initial Public Offering strategy

HDB Financial Services considered a top project of former HDFC Bank CEO Aditya Puri, has been considering going public for several years. Puri was eager to have the company listed before his tenure ended in October 2020. Following the regulations for NBFCs established in October 2022, unlisted NBFCs of systemic importance like Tata Capital, HDB Financial, and Bajaj Housing Finance are required to go public within three years of the enforcement of the new rule. These rules are determined by the size of the NBFC they are applied to.

Investment bankers said that although Bajaj Housing has started the process of going public within a year, the pace of progress is sluggish compared to other companies. "A banker mentioned that there are hardly any discussions regarding the HDB Financial IPO."