India’s private banks are selling portfolios of retail loans as regulators pressure them to improve credit-deposit ratios.
India’s largest lender, HDFC Bank Ltd., sold a 50 billion rupee ($597 million) loan portfolio to an undisclosed buyer in June, Chief Financial Officer Srinivasan Vaidyanathan said in a post-earnings media call last week.
“We did see a good amount of interest in the market,” he said, noting the bank had last done such a transaction more than a decade ago. “It’s just a beginning,” and “at appropriate price points we will keep doing it,” he added.
IDFC First Bank Ltd. sold a basket of unsecured retail loans to Citigroup Inc. in a securitization deal worth 6 billion to 7 billion rupees at the beginning of the year, according to people familiar with the plans who asked not to be named because the information is private.
IDFC “will be happy to entertain more such transactions”, said Paritosh Mathur, its head of wholesale banking, without confirming the size or timing of the transaction. The deal won a AAA rating, Mathur said, due to the “high performance of our asset portfolio.”
Sales of retail loan portfolios by private banks have been uncommon in India, but several of them are now exploring deals to improve their CD ratios given the success of HDFC’s transaction, according to the people familiar.
Private lenders are discussing loan portfolio sales with foreign banks, state-backed lenders, debt mutual funds and insurance companies, said the people.
Citi executed its first securitization financing with a digital lender, Navi Finserve, last year, according to a post on the LinkedIn page of K Balasubramanian, head of corporate banking for South Asia. A spokesperson for Citi declined to comment.
The Reserve Bank of India is concerned about the increase in credit deposit ratios, a measure of how much of a bank’s deposits are being lent out. Bank deposits grew 11.1% annually through June 28, outpaced by loan growth of 17.4%, the latest RBI data show.
The “gap between credit and deposit growth rates warrants a rethink by the boards of banks to re-strategize their business plans,” the Reserve Bank of India said in a monthly bulletin last month. “A prudent balance between assets and liabilities has to be maintained,” it said.
The market is also applying pressure to some Indian banks on their loan books. Shares of Axis Bank Ltd fell Thursday following first-quarter earnings that missed estimates on worsening asset quality.
