HDB Financial Services, a subsidiary of HDFC Bank, plans to raise up to Rs 7,500 crore through non-convertible bonds (NCDs) to support business growth.
The finance company has seen business growing at a good pace over the past few years, with assets under management (AUM) registering a compound annual growth rate (CAGR) of 10 per cent. AUM grew 6 per cent in FY20.
However, growth slumped in the current financial year (FY21) due to economic impact of the Covid-19 pandemic. In H1FY21, business growth has been muted, with loan assets growing 0.67 per cent over March 31, 2020.
The firm has seen disbursement and collection efficiency improving to around pre-Covid level, according to CARE, which has assigned “AAA” rating to the debentures. The outlook is stable.
As of March 31, the company’s loan book was diversified with 31 per cent of the portfolio into mortgage-backed assets (SME, loan against property, etc.), while asset financing (which includes tractors, used and new CVs, CEs, gold loans) had a share of 43 per cent. The remaining 27 per cent of the portfolio comprised of personal and unsecured loans.
It reported moderation in asset quality owing to changes in regulations and weakening economic environment. Its gross non-performing assets (NPAs) rose from 1.83 per cent in March 2019 to 3.87 per cent in March 2020. Net NPAs also increased from 1.26 per cent in March 2019 to 3.19 per cent in March 2020.
Moreover, poor economic conditions and higher delinquencies across sectors contributed to additional slippages. In H1FY21, it reported a Gross and Net NPAs at 4.30 per cent and 3.10 per cent, respectively, as of September 30, 2020.
But, with economic growth showing improvement in the last few months, it is expected that the asset quality would not deteriorate significantly from current levels, the rating agency said.
The finance company follows conservative reporting policies. Its write-off policy is based on gross basis (which means the entire loan amount) against net basis (taking into account only the security value), which is followed by many others.
The company has been maintaining comfortable capitalisation levels. Regular capital infusion by its parent HDFC Bank in the past and internal accruals have helped the firm maintain a comfortable capital adequacy ratio (CAR). Its reported CAR was 19.60 per cent with Tier-I CAR at 14.60 per cent as of September 30, 2020.