Synopsis: Private sector banks, including HDFC Bank, IDFC First Bank, and RBL Bank, sold loans worth nearly Rs. 40,000 crore this fiscal. These sales aim to address slower deposit growth and manage credit-deposit (CD) ratios. HDFC Bank alone sold Rs. 36,000 crore in loans, marking the first significant move of this magnitude in over two decades.
Private sector banks, traditionally known for their growth-oriented strategies, have collectively sold loans worth approximately Rs. 40,000 crore this fiscal year.
HDFC Bank Takes the Lead:
HDFC Bank, India’s second-largest bank by assets, spearheaded this shift by offloading Rs. 36,000 crore in loans.
The sales were executed through Pass-Through Certificates (PTCs) and Direct Assignments (DAs).
These transactions allowed the bank to manage its credit-deposit (CD) ratio, which had soared to 110% post its merger with HDFC Ltd in July last year.
The bank's CD ratio stood at 100% by the end of September, down from 110% but still higher than its pre-merger figure of 87%.
Analysts consider this high ratio a sign of disproportionate loan growth compared to deposits, highlighting the need for strategic financial adjustments.
The Mechanics of Loan Sales:
PTCs and DAs have been instrumental in these transactions.
PTCs enable the holder to receive payments from a pool of loans or assets, while DAs involve direct bilateral loan transfers between lenders.
By adopting these methods, banks can transfer loan assets off their balance sheets, freeing up capital for further lending activities without incurring regulatory costs.
This strategy is especially useful for banks facing liquidity constraints.
Industry-Wide Activity:
While HDFC Bank accounted for the lion’s share of loan sales, other banks also contributed. IDFC First Bank sold Rs. 2,142 crore in unsecured loans earlier this year, while RBL Bank securitized Rs. 381 crore in personal loans.
Sanjay Agarwal, Senior Director at Care Ratings, noted that such large-scale loan sales have not been observed since ICICI Bank adopted similar measures during its merger with ICICI Ltd.
Expert Insights:
Soumyajit Niyogi, Director of India Ratings & Research, described the phenomenon as a turning point for the Indian banking industry.
“The lag in deposit growth has driven banks to monetize assets and manage credit-deposit disparities. This could encourage a broader trend of similar deals in the future,” he said.
RBL Bank’s Head of Strategy, Jaideep Iyer, emphasized that their loan securitization was a tactical decision rather than a necessity.
The bank leveraged this opportunity to cross-sell loans while maintaining a healthy CD ratio of 81% in September.
Looking Ahead:
Analysts believe the loan sales mark a significant shift in banking strategies, enabling lenders to maintain balance sheet health amid challenging market conditions.
While this activity may not immediately become the norm, it could pave the way for innovative financial management practices across the sector.
In conclusion, the Rs. 40,000 crore loan sales by private sector banks underscore the growing importance of liquidity management in India’s banking sector.
This strategic shift highlights the challenges of slower deposit growth and the need for adaptive measures to sustain financial stability.
As industry experts suggest, this move could signal a new trend, encouraging banks to explore more innovative ways of managing assets.
Disclaimer: This article is for informational purposes only and should not be considered as financial or investment advice. Readers are encouraged to consult a qualified financial advisor before making any financial decisions.
