Mumbai: HDFC Bank turned down a proposal by Japanese lender MUFG to buy a stake in HDB Financial Services (HDBFS) as it feared missing a listing deadline and was unsure about onboarding a co-promoter, two people aware of the development said.
MUFG, or Mitsubishi UFJ Financial Group, was reportedly in line to buy a 20% stake in HDBFS. HDFC Bank currently owns 94.6% in the non-banking financial company (NBFC).
Some HDFC Bank board members were keen on the deal, but after much debate, the board took a collective call to not risk missing the listing deadline, the people cited above said on condition of anonymity. HDBFS is mandated to go public by September 2025, as per guidelines of banking regulator Reserve Bank of India (RBI).
The people added that getting a new investor would take about four-five months from now, and another couple of months would be needed to file the IPO papers of HDBFS with Sebi. The approval process would also take another few months, pushing the IPO to August-September 2025.
“Nobody can predict how the market conditions would be by the time the IPO was approved, and there would be no choice but to go ahead to avoid missing the deadline,” said the first person cited above.
“The IPO documents are now expected to be filed in the next three months,” the second person said. HDFC Bank’s board had given an in-principle nod to start HDBFS’s listing process on 20 July.
Further, HDFC Bank’s board also appears to be reluctant to have another company as a co-promoter. The people cited above said MUFG did not want a small stake, which would have meant sharing the promoter tag with it, an outcome the board wanted to avoid.
“People realised that having a co-promoter alongside HDFC Bank might not have much of an advantage at this stage. If the bank needs a strategic investor later, it will think about it then,” said the second person.
An email sent to HDFC Bank remained unanswered till press time, while a spokesperson for MUFG declined to comment.
HDFC Bank’s board also appears to be reluctant to have another company as a co-promoter
The listing background
In September 2022, RBI had released a list of 16 ‘upper-layer’ NBFCs including HDB Financial Services, Tata Sons, Piramal Capital and Housing Finance, and L&T Finance, among others.
The regulator said in its 2021 guidelines that upper-layer NBFCs must be listed within three years of being identified as one. A few, such as Piramal Capital and Housing Finance and Aditya Birla Finance, have tried to sidestep this by announcing mergers with their listed parents.
Why HDBFS is important
HDBFS reported a loan book of ₹90,218 crore as on 31 March, up from ₹70,031 crore in the same period last year.
The NBFC is focused on niche customer segments, and complements HDFC Bank’s product portfolio and customer coverage.
“Furthermore, HDB also supports HDFC Bank in sourcing and collection of the latter’s retail loan portfolio and provides outsourcing services to the bank,” Care Ratings said in a statement on 7 March.
The Economic Times had reported on 23 August that the board of HDFC Bank rejected a proposed $2-billion purchase of a 20% stake in HDB Financial Services by MUFG, citing unnamed HDFC Bank executives.
MUFG is among the 44 foreign banks operating in India, with five branches. As on 30 June, it had fund-based loans of ₹19,564.5 crore and another ₹5,580 crore in non-fund-based facilities. India allows foreign banks to operate either as a branch or wholly owned subsidiary of the parent. All except two — DBS Bank India and SBM Bank India — work as branches.