HDB Financial Services, a subsidiary of banking giant HDFC Bank, has initiated preparations for its upcoming initial public offering (IPO). The company has brought on board four prominent investment banks—Jefferies, JM Financial, Morgan Stanley, and Nomura—to serve as advisors for the public offering, according to insider sources who spoke to Moneycontrol under anonymity.

The formal process commenced recently, and additional investment banks may be engaged as the IPO progresses, according to one of the sources familiar with the matter. Two other individuals confirmed these developments. In terms of legal counsel, Cyril Amarchand Mangaldas has been selected to represent HDB Financial Services.

Early Stages of IPO Planning

During the kick-off meeting, the advisory team, including the banks and the company’s leadership, outlined the roadmap and strategic plans for the IPO. Responsibilities and roles were also discussed to ensure seamless execution.

While the exact valuation and IPO size are yet to be determined, initial estimates suggest that the issue could exceed a billion dollars, depending on how much HDFC Bank chooses to dilute its stake in HDB Financial Services, according to another person involved in the discussions. Official responses from HDFC Bank, HDB Financial Services, and the investment banks involved were unavailable at the time of writing, with both Nomura and Jefferies opting not to comment.

Regulatory Requirement Driving the IPO

Moneycontrol first reported on September 4, 2024, that HDB Financial Services was in the process of finalizing bankers for the IPO, with plans for listing by March 2025. This IPO is not just strategic but also mandatory. As an "Upper Layer" Non-Banking Financial Company (NBFC) under a directive from the Reserve Bank of India (RBI) in October 2022, HDB Financial Services must go public by September 2025. This listing rule applies to all Upper Layer NBFCs, including Bajaj Housing Finance, which is also planning an IPO soon.

HDFC Bank's Approval and Market Strategy

On July 20, 2024, HDFC Bank’s board of directors gave in-principle approval for the listing of HDB Financial Services. A committee was also established to take the necessary steps toward listing. In parallel, there had been talks of Japan’s Mitsubishi UFJ Financial Group (MUFG) potentially acquiring a minority stake in HDB Financial Services before the IPO, but those discussions were eventually called off.

HDB Financial Services' Market Position

HDFC Bank holds a 94.64% stake in HDB Financial Services, which operates across two key business areas—lending and business process outsourcing (BPO). The firm boasts an extensive network, with over 1,680 branches across 27 states and 4 union territories. According to its 2023-24 annual report, HDB Financial Services generated revenues of ₹14,171 crore, with a profit after tax of ₹2,461 crore, and assets under management amounting to ₹90,235 crore.