HDB Financial Services Limited, a non-banking finance company promoted by the HDFC Bank, has lined up plans to raise over Rs 8,600 crore by way of debentures.
There have been speculations about HDB floating an initial public offering (IPO), but the company is likely to wait for the current disruptive period to pass as there are business challenges.
This subsidiary of the largest private sector bank caters to the informal sector and self-employed segment. This segment has been the hardest hit post the COVID outbreak and lockdowns. The impact is visible in the pandemic year when the HDB’s net profit crashed by a massive 50 per cent from Rs 1,004 crore in 2019-20 to Rs 502 crore in 2020-21.
The second COVID wave has further jolted the informal and the self-employed segments. The most affected loan segments are consumer loans, enterprise loans and asset finance.
According to sources, the board of the NBFC met in April to clear the decks for raising over Rs 8,600 crore by way of non-convertible debentures (NCDs) in various tranches in 2021-22.
The funds would be utilised for fresh lending, refinancing of existing borrowings, and also to boost the capital levels.
The company’s capital adequacy ratio is at 19 per cent as against the regulatory requirement of 15 per cent. In the current challenging environment, it makes sense to raise funds to boost capital.
Given the low-interest rates, which could move up anytime because of the inflationary pressure in the economy, there is an opportunity to tap the debt market to replace the high-cost debt with low cost.
Currently, NCDs contribute over 40 per cent to their liabilities. The outstanding NCDs are over Rs 20,000 crore. The term loans from the back are the second-highest source with a 28 per cent contribution at over Rs 15,000 crore.
In the near future, the NBFC has the capital market route available to unlock the value as HDFC Group company will enjoy a good valuation in the stock market.
HDB Financial Services, with 1,319 branches across 959 cities, has a total loan book of Rs 58,947 crore as of March 31, 2021. The NPAs are at 3.9 per cent.