The Bank of Tokyo-Mitsubishi UFJ (MUFG) is looking to buy a 20% stake in HDB Financial Services, a non-banking subsidiary of HDFC Bank. They’re valuing the stake at around $9-10 billion, which is a big deal. The final decision is expected to be made at the HDFC Bank board meeting next week.
This deal would be one of the largest in India’s shadow banking sector. HDFC Bank owns most of HDB Financial Services, with its employees owning a small portion through ESOPs. Talks about this deal have been going on for a while, but they’ve picked up speed recently. The deal is happening at 5 times the book value, which is significant.
HDB Financial Services IPO: What You Need to Know
According to recent reports, HDB Financial Services, a non-deposit-taking lender, could be valued between $9 billion and $12 billion (₹75,000 crore to 1 lakh crore) when it goes public. The actual valuation will depend on the market’s performance at the time of the IPO.
The IPO is important because HDB Financial Services needs to list its shares before September 2025 to comply with Reserve Bank of India rules. By the end of March 2023, the company had 1,492 branches across India, making it one of the largest finance companies in market capitalization.
HDFC Bank Plans IPO for HDB Financial Services
HDFC Bank’s Chief Financial Officer, Srinivasan Vaidyanathan, mentioned on January 17 that the bank has until September 2025 to list HDB Financial Services. He also stated that preparations for the IPO would start soon.
HDB Financial Services reported a total revenue of ₹12,403 crore and a profit after tax of ₹1,959 crore for a certain period. The company mainly deals with vehicle loans, loans against property, and personal loans.
HDB Financial Services IPO
The upcoming IPO from HDB Financial Services will mark the first public offering by the combined entity of HDFC and HDFC Bank. Before this merger, the last subsidiaries to go public were HDFC Asset Management Company and HDFC Life.
MUFG is expected to have one board seat initially, with final discussions on rights and disclosures before the IPO is underway. A capital infusion of $1.8-$2 billion would also benefit the bank.
HDB Financial Services in Retail Financing
HDB Financial Services, a unit of HDFC Bank, is a major player in the retail financing sector. Its assets under management (AUM) grew to Rs 83,989 crore by December 31, 2023, from Rs 70,084 crore in March 2023 and Rs 61,444 crore in March 2022.
The bank’s capitalization remains strong, with an overall capital adequacy ratio of 17.99% as of December 31, 2023. Its reported net worth was Rs 11,952 crore by December 31, 2023, compared to Rs 11,437 crore by March 31, 2023.
CRISIL noted that the cushion for asset side risks was sufficient, with the net worth coverage for net non-performing assets (NPAs) at around 20 times as of December 31, 2023.
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