Japanese Bank MUFG Eyes 20% Stake In HDFC Bank Subsidiary HDB Financial Services For $2 Billion; Reports

Reports have emerged of Japan-based MUFG's interest in acquiring a significant stake in HDB Financial Services, a subsidiary of HDFC Bank. Although HDFC Bank has not officially confirmed plans to sell its stake, it has hinted that such a proposal is under consideration to meet regulatory listing requirements, thereby signalling potential changes on the horizon.

"Our investment in HDB Financial is a financial investment. We hold around 94.8% stake. HDB is in the upper layer of NBFCs which means it needs to be listed by September 2025 under regulatory guidelines," revealed HDFC Bank CFO Srinivasan Vaidyanathan during the bank's recent earnings call.

Vaidyanathan emphasized that the bank is exploring all options to achieve the listing requirement and ensure compliance. "All possibilities will be evaluated to get to that end outcome, so we'll have to be patient. There are several approaches to take there, and all possibilities are under evaluation," he added, hinting at the decision-making process.

The proposed deal with MUFG could significantly alter HDB Financial's valuation dynamics. MUFG is reportedly eyeing a 20% stake in HDFC Bank's non-banking arm for approximately $2 billion, valuing the company at an impressive $9-12 billion. This valuation stands nearly five times the book value of HDB Financial, making it one of the largest deals in the NBFC sector if materialized.

HDB Financial, which currently has 94.8% ownership by HDFC Bank and 5% held by employees under an ESOP scheme, is gearing up for its IPO. In January 2024, Vaidyanathan had previously stated that the bank is actively working towards listing the company, with preparatory work for the IPO set to commence shortly.

The IPO of HDB Financial will mark a milestone for the entity, following the merger of HDFC Limited with HDFC Bank, which became effective in July 2023. With total revenue from operations for FY23 standing at Rs 12,403 crore and profit after tax at Rs 1,959 crore, HDB Financial has established itself as a player in various loan segments, including vehicle, small business, personal and gold loans, as well as loans against property.

The potential stake sale to MUFG and the subsequent IPO could unlock significant value for HDFC Bank while providing HDB Financial with access to additional capital and resources to fuel its growth trajectory. The deal also underscores the attractiveness of India's NBFC sector to global investors, highlighting the confidence in the country's economic prospects and financial markets.

*Inputs from BusinessLine*