HDFC’s likely move to sell its loan to international banks is fueled by a significant increase in the bank’s credit-to-deposit ratio
HDFC Bank is in discussions with international banks, including JP Morgan Chase & Co, Barclays Plc, Citigroup, to offload loans worth Rs 84 billion to bring a balance between its credit book and deposits, according to Economic Times report. Apart from the global banks, ICICI Bank is also a part of the talks.
The sale of loans is likely to be carried out through debt instruments called pass-through certificates (PTCs). PTC is an instrument that helps to convert fixed assets into liquid ones and helps in generating cash flow. The details of the deal, however, haven’t reached the final stage, ET reported citing sources.
Additionally, Bloomberg had earlier reported that HDFC is holding discussions with local asset management companies to sell loans worth $100 billion. Reportedly, the lender sold nearly Rs 50 billion loan portfolio to an unnamed buyer.
The move has come at a time when HDFC’s credit to deposit ratio has increased substantially. According to a Moody’s Ratings unit, ICRA revealed that the lender’s credit to deposit ratio at the end of March 2024 was 104 per cent. This was higher than the 85 per cent to 88 per cent rate as compared to the past three fiscal years.
The rise in loan-to-deposit ratio is not a situation faced by HDFC alone. In fact, the Reserve Bank of India (RBI) has raised concerns about the structural changes happening in the banking system. Recently, the RBI data showed the credit-deposit ratio is at its highest in nearly two decades. This was fueled by an increase in home loans and other loans for consumption.
“It goes without saying that there will always be some gap between the two, but credit growth should not run ahead of deposit growth by miles,” said RBI governor Shaktikanta Das.