HDFC Bank, India’s largest private lender by assets, will grow its loan securitisation business over the next few years to meet rising investor demand, the bank’s chief financial officer said.
The bank will continue to build this business as a way to create space for fresh loans without bulking up its balance sheet, CFO Srinivasan Vaidyanathan said in an interview late on Thursday.
Loan securitisation involves bundling of loans and slicing them into new investments.
“We do believe this is a strategic initiative… I believe that over a three-year to five-year period, it would be substantial,” Vaidyanathan said, but declined to share a target for loan sales.
The bank has sold 463 billion rupees ($5.30 billion) in loans through securitisation so far this financial year.
Securitisation volumes in India are expected to rise to 2.4 trillion rupees in the current fiscal year ending March 31, a 25% increase over last year, according to rating agency ICRA.
The loan sales, which HDFC Bank had avoided, are being driven by multiple objectives, including a need to bring down its loan-to-deposit ratio which had risen following its merger with parent HDFC in July 2023.
The bank previously said that it aims to bring down that ratio to below 90% from close to 100% now. A lower ratio indicates a stronger liquidity position.
But an expansion in the market for loan securitisation is a bigger factor behind the decision to grow that business, said Vaidyanathan.
“We currently see a good amount of interest, including from local investors, pension funds, insurance, certain other banking institutions,” he said, adding that international investor interest in securitised loans is also picking up.
The bank’s broader objective in the near term remains to grow its deposit book more quickly than loans, with particular focus on raising the share of lower-cost retail deposits.
The bank said in January it will grow its deposits at a pace above the banking system in the upcoming financial year starting April 1, while growing loans at a rate close to the market.
“A better CASA (current account, savings account) mix is also an important priority” because of changing customer preferences, he added, referring to a shift from deposits to equity investments as the preferred saving option.
In the current financial year, the bank slowed loan growth in the unsecured retail loan category due to fears of rising delinquencies.
The bank may now see opportunities for quicker loan growth in that segment as many other financial sector players have retreated.
“The opportunity will open up as other players in the market slow down…We’ll have better opportunities in that space without changing any credit criteria,” he said.
Over the past two months, the Reserve Bank of India has eased liquidity conditions and loan rules, while the government has reduced the tax burden for consumers amid high inflation.
Vaidyanathan sees these as “tailwinds” for the sector, which will help improve lending and deposit markets over the next year.
