In the third strategic move in its overall offloading of a major chunk of its housing loan book to reduce credit burden in the face of persistent regulatory pressures on the banking industry, HDFC Bank has sold off housing loan book worth about Rs 6,000 crore, or $717 million, in total. According to people in the know of the developments and who spoke with ET on conditions of anonymity, HDFC Bank has sold the portfolio to some six state-controlled banks through private agreements.
Apart from the housing loans, HDFC Bank has also sold a portfolio of car loans worth Rs 9,060 crore. This has been securitized into a fixed income product called pass-through certificates. The bank has been in discussions with almost a dozen local asset management companies for the sale of this car loan portfolio.
The strategic sales are intended to enhance HDFC Bank’s financial metrics-particularly the bank’s capital adequacy ratio, which has been under pressure in recent years due to the consistently higher growth of credits versus deposits. The sale of these loan portfolios is part of a larger trend through which Indian banks try for better balance-sheet management, reacting to prevailing regulatory and market requirements.
The regulatory environment is turning really stringent for Indian banks, mainly concerning their capital and risk management. Therefore, financial institutions have no choice but to optimize their asset portfolios to be appropriately compliant while having enough liquidity to support future lending operations. HDFC Bank’s decision to sell off such loan portfolios is a proactive step that will help the bank manage its credit exposure to its benefit and ultimately fortify its overall financial stability.
Thus, the fact that HDFC Bank is selling the housing loan portfolio is noteworthy given the fact that this is one of the biggest private sector lenders in India. The sale of such loans could free up the capital for the bank to be deployed elsewhere in the business or in new lending opportunities. Secondly, consolidation of problematic assets thus would enable the bank to strike a better balance with risks associated with increasing defaults and delinquencies in a challenging economic environment.
Analysts say that the banks are increasingly resorting to portfolio sales to improve their balance sheets. Securitization and sale of loan pools reduces the immediate credit exposure but continues the current cash flows with these loans for the banks.
HDFC Bank is just one among many other examples in which the institutes are reorienting their approach in light of changing economic trends. The Indian economy-the banks are yet to see the back of the pandemic, but they are looking up today. The continued struggle of the Indian economy has made a complex scenario characterized by both challenges and opportunities.
While HDFC Bank offloads Rs 6,000 crore in home loans, and more than the Rs 9,060 crore in automobile loans, the bank would be well-equipped to manage its credit burden while adhering to regulatory restrictions. The entire strategy only reinforces HDFC Bank’s commitment towards staying financially fit but do show the dynamics in the banking space and how these institutions respond to regulatory pressures and checks of the market.
