Japanese Bank MUFG Eyes $2 Billion Investment In HDB Financial Services Ahead Of IPO Talks; Reports

Japan's Mitsubishi UFJ Financial Group Inc (MUFG) is on the verge of making a significant investment of up to $2 billion in HDB Financial Services Ltd, a non-bank lender and subsidiary of India's leading private sector lender HDFC Bank Ltd. According to informed sources speaking to Moneycontrol, this investment could potentially value the non-bank lender at a substantial $10 billion. HDFC Bank currently holds a dominating 95% stake in the NBFC arm.

The investment discussions with MUFG come at a crucial juncture, just as HDB Financial Services gears up for its initial public offering (IPO). In January, HDFC Bank's Chief Financial Officer Srinivasan Vaidyanathan hinted at the imminent commencement of the IPO process for HDB Financial Services in the coming months.

Initial reports of talks between MUFG and HDFC Bank surfaced in the Economic Times last Friday, underscoring MUFG's keen interest in expanding its footprint in India's financial landscape. MUFG's previous foray into the Indian market includes a significant investment of Rs 1,910 crore in DMI Finance Pvt Ltd, a fintech company specializing in digital financial services.

As per a March 7 report by credit rating agency Crisil, HDB Financial Services boasts a diversified product portfolio, with commercial vehicle/construction equipment financing comprising 44% of its assets under management (AUM) as of December 31, 2023. Additionally, loans against property and business loans each accounted for 24% of the AUM.

The NBFC has shown healthy growth, with its AUM swelling from Rs 70,084 crore as of March 31, 2023, to Rs 83,989 crore as of December 31, 2023. Moreover, its expansion into consumer durable financing, gold loans, digital products loans, and other segments has seen a notable uptick, with its share of AUM increasing from 3% in March 31, 2019, to 8% by December 31, 2023, according to Crisil.

Crisil's report further underscores the robust credit profile of HDB Financial Services, supported by healthy capitalization, boasting a net worth of Rs 11,952 crore as of December 31, 2023. The NBFC's gearing stood at 5.59 times during the same period.

Significantly, HDB Financial Services has demonstrated a commendable reduction in gross stage III assets, dropping to 2.25% as of December 31, 2023, from 2.73% as of March 31, 2023. This decline is attributed to effective write-offs and lower slippages.

Financially, HDB Financial Services has showcased impressive performance, reporting a profit of Rs 1,959 crore for fiscal 2023, a leap from Rs 1,011 crore in fiscal 2022. For the first nine months of fiscal 2024, the NBFC reported a profit of Rs 1,805 crore, as per Crisil's report.

Despite attempts to obtain comments from both HDFC Bank and MUFG, responses were not forthcoming at the time of press.

MUFG's potential investment in HDB Financial Services underscores the growing interest of international financial institutions in India's dynamic and burgeoning non-bank lending sector.