HDB Financial Services is planning to raise over Rs 8,600 crore via debt, deferring its plans to float an initial public offering (IPO). HDB Financial Services is the non banking financial arm of HDFC Bank. This subsidiary of the largest private sector bank caters to the informal sector and self-employed segment and wants to improve the deteriorated asset quality. The company is awaiting for the disruptive phase to pass, post that IPO plans would be reconsidered.

Various media reports suggest that the board of the firm met in April to clear the decks for raising the funds by way of non-convertible debentures (NCDs) in various tranches in 2021-22. The funds would be utilized for fresh lending, refinancing of existing borrowings, and also to boost the capital levels. The company is considering debt as the cost of borrowing is very less at present. However, the central bank may decide to taper in due to the rising inflationary pressure in the economy. This will also ooze out liquidity from the market, making cash more dearer.

HDB Financial Services, with 1,319 branches across 959 cities, has a total loan book of Rs 58,947 crore as of March 31, 2021. It focuses on the risky unsecured personal loans, new to credit loans, consumer durable loans, used car loans, credit card balance transfer and loans to small enterprises.

The key target customers of the company are most hit by the second wave of lethal Covid-19, which has resulted in lockdown in many states of the country. The impact is visible in the pandemic year when the company's net profit halved during the coronavirus affected financial year 2019-20, from ₹1,037 crore to ₹503 crore. Net profit fell 17% to ₹$285 crore in the quarter ended on March 31, 2021 from ₹342 crore a year ago due to a rise in provisions. Total provisions during the period increased to ₹613 crore from ₹393 crore a year earlier.

HDB's recorded a modest 5% increase in its loan book to ₹58,947 from ₹55,930 cr a year ago. Net interest income grew 15% to Rs 1,252 cr from Rs 1,084.5 cr a year ago. Analysts said the company has been able to arrest the slide in asset quality after a deterioration in the nine months of the fiscal. Gross NPAs had increased to 5.9% in December from 5.1% in September 2020.

NCDs contribute over 40 per cent to their liabilities. The outstanding NCDs are over ₹20,000 crore. The term loans from the back are the second-highest source with a 28% contribution at over ₹15,000 crore. HDB Financial Services enjoys a premium valuation, bragging about its strong parentage of HDFC Group. HDFC Bank holds a 95.1% stake in HDB. The NBFC will attempt to unlock the value via the capital market route.