Prior to IPO negotiations, Japanese bank MUFG plans to invest $2 billion in HDB Financial Services; reports

The largest private sector lender in India, HDFC Bank Ltd., is a subsidiary of HDB Financial Services Ltd., a non-bank lender. A large investment of up to $2 billion is about to be made in HDB Financial Services Ltd. by Japan’s Mitsubishi UFJ Financial Group Inc. (MUFG). Moneycontrol has been told by reliable sources that this investment may be worth a considerable $10 billion to the non-bank lender. Currently, HDFC Bank commands 95% of the NBFC division.

The timing of the investment talks with MUFG is significant since they coincide with HDB Financial Services’ preparation for an IPO. Srinivasan Vaidyanathan, the Chief Financial Officer of HDFC Bank, made a hint in January that HDB Financial Services’ IPO process would soon get underway.

The Economic Times published early details of discussions between MUFG and HDFC Bank last Friday, highlighting MUFG’s strong desire to increase its presence in India’s banking sector. A notable investment of Rs 1,910 crore made by MUFG in DMI Finance Pvt Ltd, a fintech business that specializes in digital financial services, was part of the company’s prior entry into the Indian market.

According to a study released on March 7 by credit rating agency Crisil, HDB Financial Services has a diverse range of products. As of December 31, 2023, 44% of its assets under management (AUM) were accounted for by financing for commercial vehicles and construction equipment. Furthermore, 24% of the AUM was made up of business and property-related loans.

The NBFC has shown robust expansion, as seen by the rise in its AUM from Rs 70,084 crore on March 31, 2023, to Rs 83,989 crore on December 31, 2023. Furthermore, there has been a noticeable upsurge in its development into consumer durable finance, gold loans, digital product loans, and other areas; by December 31, 2023, its proportion of AUM had increased from 3% to 8%, as reported by Crisil.

The strong capitalization and credit profile of HDB Financial Services, which had a net value of Rs 11,952 crore as of December 31, 2023, are further highlighted in Crisil’s report. At the same time, the NBFC’s gearing was 5.59 times.

Remarkably, HDB Financial Services has shown that it can reduce its gross stage III assets. As of December 31, 2023, it was down to 2.25% from 2.73% as of March 31, 2023. Reduced slippages and efficient write-offs are the reasons for this drop.

HDB Financial Services has shown remarkable financial success, with a profit of Rs 1,959 crore for the fiscal year 2023—a significant increase from Rs 1,011 crore for the previous year. According to Crisil’s report, the NBFC posted a profit of Rs 1,805 crore for the first nine months of fiscal 2024.

When this story went to print, neither HDFC Bank nor MUFG had responded to requests for comment.

The possibility of MUFG investing in HDB Financial Services shows how foreign financial institutions are becoming more and more interested in India’s vibrant non-bank lending market.