Besides growing advances a little slower than deposits, HDFC Bank has zeroed-in on big-ticket loan securitisation to moderate its credit-deposit (CD) ratio.
This can be inferred from the fact that India’s largest private sector bank will be assigning a pool of car loans aggregating about ₹9,000 crore to the India Universal Trust AL1 in an asset -backed securities transaction.
The Trust, in turn, will issue pass through certificates (PTCs) to investors, including banks and mutual funds.
India Ratings and Research (Ind-Ra) has assigned the India Universal Trust AL1 a provisional rating of “AAA (Structured Obigation)/Stable” for its three series of PTCs – Series A1 ( ₹3,500 crore), Series A2 (₹1,800 crore) and Series A3 ( ₹3,762 crore).
The provisional rating of the Series A1, A2 and A3 PTCs addresses the timely payment of interest and timely payment of principal to the PTC investors as per transaction documentation, Ind-Ra said.
The Series A1, A2 and A3 PTCs are time-tranched with Series A1 PTCs expected to be fully redeemed first (September 20, 2026) followed by Series A2 PTCs (July 20, 2027), and Series A3 PTCs (September 20, 2030).
In securitisation, an identified pool of homogeneous assets are packaged together and sold to a special purpose vehicle, which in turn issues PTCs as financial instruments to investors.
Credit-to-deposit ratio
Banks will grow advances a little slower than deposits
In a letter to shareholders in July 2024, HDFC Bank MD & CEO Sashidhar Jagdishan said the bank will grow its advances a little slower than deposit growth to bring down the credit-to-deposit (CD) ratio to pre-merger levels.
Pre-merger, the CD ratio of the bank was at 80-85 per cent. HDFC merged with HDFC Bank with effect from July 1, 2023. Post-merger, HDFC Bank’s CD ratio was at about 104 per cent as at March-end 2024.
A CD ratio above 100 means that a bank’s asset creation (credit) has run ahead of liabilities accretion (deposits). So, besides deposits, it is supporting asset creation with alternatives such as bonds.
“It is our endeavour to bring down the credit-to-deposit ratio to pre-merger levels and our focus would be to maintain adequate liquidity buffers, repayment of erstwhile HDFC borrowings as and when they mature, including weighing any prepayment opportunities that may arise, and pursuing profitable sources of lending,” Sashidhar said.
More recently, in an analyst call, he emphasised that the Bank’s focus is going to be on profitable growth and not just on growth.
“And yes, in the bargain, it is in our interest to bring down the loan-deposit ratio much faster than what one would have anticipated,” he added.
An email sent to the Bank seeking its comments on the securitisation transaction remained unanswered.
