HDFC Bank is set to sell a loan portfolio worth ₹10,000 crore ($1.2 billion) as part of a strategy aimed at boosting its deposits and maintaining profitability. This move comes as the bank looks to improve its credit-to-deposit ratio, which has worsened in recent years due to an imbalance between loans given and deposits collected.

HDFC Bank’s Plan

HDFC Bank is currently in talks with major asset managers like ICICI Prudential AMC, Nippon Life India, and SBI Funds. These discussions revolve around selling loans through Pass-Through Certificates (PTCs), which will be backed by the bank’s car loans. These certificates will be issued in multiple tranches over the next few weeks, carrying interest rates between 8.3% and 8.5%.

What are Pass-Through Certificates (PTCs)?

Pass-Through Certificates are a financial instrument through which banks sell their loans. By selling loans in the form of PTCs, banks transfer the loan assets to a buyer while continuing to collect the repayments. HDFC Bank has not used this method in the past 10 years. Utilizing PTCs will help the bank improve its credit-to-deposit ratio, which has worsened as the bank issued more loans without a proportionate increase in deposits.

HDFC Bank’s Current Situation

As of March 2024, HDFC Bank’s credit-to-deposit ratio had risen to 104%, a significant jump from its previous range of 85%-88%. This indicates that the bank has given out more loans than it has deposits. Such a ratio is a cause for concern, as it can lead to liquidity issues in the future.

Pressure to Increase Deposits

Both the Reserve Bank of India (RBI) and Finance Minister Nirmala Sitharaman have urged banks to find ways to increase deposits. The RBI has warned that if banks do not boost their deposit base, they could face a liquidity crisis in the near future.

By selling loans through PTCs, HDFC Bank aims to ease this pressure and create a healthier balance between its loans and deposits, ensuring smooth operations and stable liquidity.

Source: GulfHindi News (https://gulfhindi.com/hdfc-ready-to-sell-off-10000-crore-loan-portfolio/)

For HDFC Bank customers, the decision to sell a ₹10,000 crore loan portfolio through Pass-Through Certificates (PTCs) will likely have limited direct impact. However, there could be some indirect effects, especially for customers with car loans or those looking to open new accounts or take out new loans. Here’s what might change:

1. No Direct Impact on Existing Loan Holders

If your car loan is part of the portfolio being sold through PTCs, your loan will continue as normal. The terms, interest rates, and repayment schedule will not change, as the bank will still service the loan, even though another entity may hold the financial asset.

2. Potential for Competitive Loan Offers

HDFC Bank may aim to maintain or increase its customer base by offering more competitive loan products or better terms to attract new borrowers, particularly in the car loan segment. This could benefit new customers looking for better deals on loans.

3. Interest Rate Stability

Since the bank will generate liquidity through the sale of its loan portfolio, it could potentially avoid hiking interest rates on loans due to liquidity pressures. This could benefit both existing and new borrowers by keeping interest rates stable.

4. Improved Services for Depositors

The bank will likely focus on increasing its deposit base, so customers could see better savings schemes, higher interest rates on fixed deposits (FDs), and more attractive banking products. This could be a plus for savers who want better returns on their money.

5. Potential Focus on Marketing and Promotions

To attract more deposits and meet regulatory expectations, HDFC Bank might roll out promotions, including special offers on savings accounts, fixed deposits, and investment products. These offers could benefit retail customers.

6. Faster Loan Processing

As the bank improves its liquidity through the sale of loans, it may streamline loan approval processes to attract more customers. This could mean faster loan approvals for new car loans and other products.

7. No Major Impact on Day-to-Day Banking

For most regular banking activities like UPI payments, savings accounts, or credit card services, this strategic move is unlikely to cause any major change. Customers will still enjoy the same services and customer support they are used to.

Overall, while this move is more focused on improving the bank’s internal balance between loans and deposits, customers could benefit indirectly through more competitive loan products, better deposit schemes, and improved banking services