HDFC Bank To Sell Over Rs 9,000 Crore Car Loans To Manage Credit-Deposit Ratio

India's largest private sector lender HDFC Bank Ltd is looking to sell 1,08,711 car loans worth Rs 9,062.38 crore, in a bid to address its burgeoning credit-deposit ratio. The bank is executing this sale through a rarely used instrument called 'pass through certificates'. These are financial instruments giving the holders fixed income from a pool of assets, like loans.

This might be the largest sale of PTCs in India, according to a person in the know. In a statement on Wednesday, rating agency India Ratings & Research said that it has assigned Universal Trust AL1 Provisional Rating to HDFC Bank's instruments. The ratings are provisional and contingent upon the execution of certain documents and occurrence of certain steps, the rating agency said.

According to India Ratings, the assets are distributed into three pools of Rs 3,500 crore, Rs 1,800 crore and Rs 3,762.38 crore. The pools mature in September 2026, July 2027 and September 2030, respectively.

The weighted average original loan-to-value of the loans in the pool was 84.7%. The pool had an average original loan balance of Rs 1,058,882 and a weighted average internal rate of return of 8.92%. All the loans in the pool were current as on the cut-off date, India Ratings said in its statement.

As of June 30, HDFC Bank's credit-deposit ratio was at 105%, implying that outstanding loans were higher than deposits for the bank. A high credit-deposit ratio shows that the lender has limited headroom for asset growth, without incurring heavy asset-liability mismatches. The lender has faced elevated credit-deposit ratio since its merger with Housing Development Finance Corporation in July 2023.

As of June 30, the bank's outstanding loan book was at Rs 24.87 lakh crore, while its auto loan portfolio was at Rs 1.33 lakh crore.

The rating agency has derived a base case gross default rate of 0.9%-1.2%. It has assumed a base case recovery rate of 70%-80%, with a base case recovery time of 9-12 months, to arrive at the rating. The pool cash flow is further adjusted for prepayments of underlying loans, assuming a base case monthly prepayment rate of 0.25-0.50%.

The pool is amortised by 20.8%, with a seasoning of 15.2 months, implying a significant repayment track record of the underlying borrowers, the rating agency said in its statement.

If the assumptions of both default rate and recovery rate were simultaneously worsened by 20%, the model-implied rating sensitivity suggests that the rating of the PTCs will not be downgraded, India Ratings said.