HDB Financial Services Limited, a non-bank finance company promoted by HDFC Bank, has lined up plans to raise more than Rs 8,600 crore in the form of debentures.
There has been speculation that HDB will launch an Initial Public Offering (IPO), but the company will likely wait until the current disruptive period ends as there are business challenges.
This subsidiary of the largest private sector bank targets the informal sector and the self-employed segment. This segment has been hit the hardest after the COVID outbreak and lockdowns. The impact is visible during the pandemic year when HDB’s net profit collapsed by 50%, from Rs 1,004 crore in 2019-20 to Rs 502 crore in 2020-2021.
The second wave of COVID shook the informal and independent segments again. The most affected credit segments are consumer credit, business credit and asset finance.
According to sources, the NBFC board of directors met in April to authorize the raising of more than Rs 8,600 crore through non-convertible debentures (NCDs) in various tranches in 2021-2022.
The funds would be used for new loans, refinancing of existing loans and also to increase capital levels.
The company’s capital adequacy ratio is 19 percent against the regulatory requirement of 15 percent. In today’s difficult environment, it makes sense to raise funds to increase capital.
With low interest rates, which could rise at any time due to inflationary pressure in the economy, it is possible to tap the debt market to replace high cost debt with low cost.
Currently, NCDs contribute more than 40 percent of their commitments. Exceptional NCDs are over Rs 20,000 crore. Rear term loans are the second highest source with a 28% contribution to over Rs 15,000 crore.
In the near future, NBFC has the capital market path to unlock value, as the HDFC group company will enjoy a good stock market valuation.
HDB Financial Services, with 1,319 branches in 959 cities, has a total loan portfolio of Rs 58,947 crore as of March 31, 2021. NPAs are at 3.9 percent.
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