HDB Financial's ₹12,500 cr IPO approved: Key risks, strengths you must know

HDB Financial Services IPO comprises a fresh issue of ₹2,500 crore and an OFS of ₹10,000 crore by parent HDFC Bank

HDB Financial Services IPO: HDB Financial Services, a subsidiary of India's largest private lender HDFC Bank, has received the approval from Securities and Exchange Board of India (Sebi) for its ₹12,500 crore initial public offering (IPO). 

 

The HDB Financial Services IPO comprises a fresh issue of ₹2,500 crore and an offer for sale (OFS) of ₹10,000 crore by parent HDFC Bank, which currently owns 94.3 per cent stake in the non-banking financial company (NBFC). The company had filed its papers for the IPO in October 2024. 

 

According to the DRHP, the company plans to use the net fresh issue proceeds for augmentation of its Tier-1 capital base to meet the company's future capital requirements including onward lending. 

 

The company has been mandated by the new rules issued by the Reserve Bank of India (RBI) in 2022 that require large non-banking financial companies to be listed on stock exchanges by September 2025. The public issue presents both strengths and risks.  ALSO READ | Ganga Bath Fittings IPO Day 1 update; check subscription, GMP, key dates

Here are the key strengths of HDB Financial Services, as outlined in the DRHP:

Strong retail loan book: The company has a highly granular retail loan book, boosted by a large and rapidly growing customer base with a focus on serving the underbanked customer segments. It has served 17.5 million customers as of September 30, 2024, which grew at a CAGR of 28.22 per cent between March 31, 2022 and September 30, 2024. 

 

Robust credit processes: HDB Financial Services has built strong credit underwriting and collection systems, supported by a dedicated in-house team of around 4,500 professionals as of September 30, 2024. The credit team operates independently from the sales team, with clearly defined roles and no overlap in targets or responsibilities. This structure ensures disciplined risk management and supports sustainable growth.

 

Strong backing from HDFC Bank: HDB Financial Services is a subsidiary of HDFC Bank, India’s largest private sector bank with total assets of ₹36.88 trillion as of September 30, 2024. HDFC Bank has a strong presence across retail and commercial banking, asset management, insurance, and brokering. Founded in 1994 by HDFC Limited, which merged with HDFC Bank in 2023, HDFC Bank enjoys high trust and strong brand equity among consumers.  ALSO READ | 3B Films IPO allotment today; check status, GMP, listing date

Here are the key risks associated with investing in HDB Financial Services:

Risks from economic slowdown: According to the DRHP, any downturn in the macroeconomic environment in India could adversely affect the company's business, results of operations, cash flows and financial condition.

 

Risk of loan defaults: HDB Financial Services pointed out that non-payment or default by its customers, its inability to provide adequate provisioning coverage for non-performing assets or change in regulatorily mandated provisioning requirements may adversely affect its financial condition and results of operations.

 

Unsecured loans: In addition, HDB's unsecured loan portfolio is not supported by any collateral that could help ensure repayment of the loan, and in the event of non-payment by a borrower of one of these loans, it may be unable to collect the unpaid balance.

 

Heavy dependence on promoter: HDB Financial Services is dependent on its parent. "However, the interests of the Promoter as our controlling shareholder may conflict with our interests or the interests of our other shareholders. Our Promoter may also be required to significantly reduce its ownership in our Company, which may have a material impact on our business operations and share price," the company said.

 

Interest rate scenario: Any volatility in interest rates, could result in the decline of Net Interest Income (NII) and our Net Interest Margins (NIMs).

 

Highly competitive environment: In a highly competitive lending services industry, the company's inability to compete effectively could adversely impact its business operations and financial condition. HDB Financial also said that "we may not be successful in implementing our growth strategies or sustaining our growth and financial performance at similar rates as experienced in recent years."