HDB Financial Services
- HDB Financial Services is coming out with a 100% book building; initial public offering (IPO) of 17,85,71,426 shares of Rs 10 each in a price band Rs 700-740 per equity share.
- Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
- The issue will open for subscription on June 25, 2025 and will close on June 27, 2025.
- The shares will be listed on BSE as well as NSE.
- The face value of the share is Rs 10 and is priced 70.00 times of its face value on the lower side and 74.00 times on the higher side.
- Book running lead managers to the issue are JM Financial, BNP Paribas, BofA Securities India, Goldman Sachs (India) Securities, HSBC Securities and Capital Markets (India), IIFL Capital Services, Jefferies India, Morgan Stanley India Company, Motilal Oswal Investment Advisors, Nomura Financial Advisory and Securities (India), Nuvama Wealth Management and UBS Securities India.
- Compliance Officer for the issue is Dipti Jayesh Khandelwal.
Profile of the company
HDB Financial Services is the seventh largest leading, diversified retail-focused non-banking financial company (NBFC) in India in terms of the size of Total Gross Loan book at Rs 902.2 billion as at March 31, 2024, amongst its NBFC peers. The company is categorized as an Upper Layer NBFC (NBFC-UL) by the RBI. It offers a large portfolio of lending products that cater to a growing and diverse customer base through a wide omni-channel distribution network. Its lending products are offered through its three business verticals: Enterprise Lending, Asset Finance and Consumer Finance.
It began its journey in 2007 as a subsidiary of HDFC Bank, which is the largest private sector bank in India in terms of total assets as at March 31, 2025, with businesses (including those of its subsidiaries) spanning across retail and commercial banking, asset management, life insurance, general insurance and broking. Under HDFC Bank’s parentage, it has embedded a philosophy of balancing between delivering long-term sustainable growth and profitability. It has derived benefits from HDFC Bank’s parentage, including its brand recognition, while still establishing a set-up independent from HDFC Bank across its various functions including sourcing, underwriting, operations and risk management functions.
It is a diversified NBFC, with a goal of having an optimal mix across products, while maintaining a balanced approach to secured and unsecured loans in its loan book. The company’s strategy of portfolio diversification across both products and geographies creates a strong and sustainable franchise. its diversified product portfolio serves multiple credit needs of customers across three business verticals i.e. Enterprise Lending, Asset Finance and Consumer Finance. It also offers business process outsourcing (BPO) services such as back-office support services, collection and sales support services to its Promoter as well as fee-based products such as distribution of insurance products primarily to its lending customers.
Proceed is being used for:
Augmentation of the company’s Tier - I Capital base to meet the company’s future capital requirements including onward lending under any of the company’s business verticals i.e. Enterprise Lending, Asset Finance and Consumer Finance.
Industry Overview
The credit growth of NBFCs which has trended above India’s GDP growth historically, is expected to continue to rise at a faster pace. NBFCs have shown remarkable resilience and gained importance in the financial sector ecosystem, growing from less than Rs 2 trillion AUM at the turn of the century to Rs 48 trillion at the end of FY 25. During FY19 to FY 25, NBFC credit is estimated to have witnessed a growth at CAGR of 13.2%. NBFCs AUM as of FY19 was approximately Rs 23 trillion which grew at a 6 year CAGR of 13.2% to Rs 48 trillion as of FY 25. Rapid revival in the economy is expected to drive consumer demand in FY 26, leading to healthy growth in NBFCs. Going forward, NBFC credit to grow at 15-17% between FY 25 and FY 28, driven by growth across retail, MSME and corporate segments continuing to be the primary drivers. NBFC’s share in systemic credit is estimated to have increased from 12% in FY08 to 13% in FY14 to 21% in FY 25. Overall, consolidation in certain corporate groups and other corporate activities indicate buoyancy in the NBFC space and expectations of healthy credit growth.
In fiscal 2025, the credit growth of NBFCs is estimated to have slowed to 18%, compared to 21% recorded in previous fiscal, mainly due to a slowdown in unsecured loans, including microfinance, personal loans and consumer durables. The slowdown in unsecured loans can be attributed to its rapid expansion over the past few fiscals and overleveraging concerns which can impact asset quality. RBI intervened in November 2023 to slow down unsecured retail loan growth by tightening capital norms. Though infrastructure accounts for the highest share in NBFC credit (26%) as of FY 2025, its share in the overall NBFC credit outstanding has come down over the past years from 31% in FY 2019. Retail and MSME segments are expected to experience higher growth in the upcoming fiscals. MSME credit accounted for 23% share as of FY 2025, witnessing a rise in its market share from 16% in FY 2019. Housing and auto segment constitute approximately 16% and approximately 11% share in overall NBFC credit as of FY 2025.
In fiscal 2025, the retail segment's share in the lending mix is estimated to decline marginally, while the wholesale segment's share is expected to increase. This trend is likely to continue into fiscal 2026, with the share of both segments remaining steady. The retail loan growth rate is expected to increase moderately to 17-18% in fiscal 2026, driven by growth in housing, vehicle and consumer durable loans. However, NBFCs are expected to maintain a cautious approach to unsecured lending due to visible stress in the microfinance and personal loan segments. The growth of gold loans is expected to normalize after the exceptional growth recorded in fiscal 2025. In contrast, the wholesale segment's growth rate is projected to decline slightly, mainly due to an expected slowdown in infrastructure disbursements. Nevertheless, MSME and corporate and real estate loans are expected to continue to see an uptick.
Pros and strengths
Highly granular retail loan book, bolstered by a large and rapidly growing customer base: It is India’s second largest and third fastest growing customer franchise amongst its NBFC peers (for which data is available) and it has served 19.2 million customers as at March 31, 2025, which grew at a CAGR of 25.45% between March 31, 2023 and March 31, 2025. The growth of its customer base is supported by the government’s policies aiming to promote financial inclusion for the middle-class. Its customers are primarily composed of middle-class salaried and self-employed individuals, as well as small business owners and entrepreneurs. This customer base has contributed to a loan book that is expected to have the potential of delivering competitive risk-adjusted returns. Its low customer concentration reduces its dependence on any particular set of customers. Its 20 largest customers contributed to less than 0.34% of its Total Gross Loan book as at March 31, 2025.
Large, diversified and seasoned product portfolio: The company has built a balanced and diversified portfolio of lending products that seek to fulfil a wide range of needs and aspirations for its customers, including its underbanked customers. As at March 31, 2025, its product portfolio consisted of 13 lending products spanning across its three business verticals of Enterprise Lending, Asset Finance and Consumer Finance. Its product suite varies by type of loan, type of customer, tenure and interest rate. Its products offering is capable of addressing the key borrowing needs of its customers that span from business loans (for working capital and business expansion purposes) to loans for the purchase of new and used vehicles and equipment (for income-generating purposes) to loans for the purchase of consumer, digital and lifestyle durables and personal vehicles (for personal needs).
Tailored sourcing supported by an Omni-channel: The company’s physical sourcing network is composed of its own internal distribution network, its external distribution network as well as its digital capabilities. It has a Pan-India presence with no region accounting for more than 35% of its Total Gross Loans as at March 31, 2025. Given the highly fragmented geographic dispersion of India’s underbanked population beyond the metropolitan cities, it has further tailored its distribution presence to strengthen its visibility beyond metropolitan cities and towns in India. It has customized different sourcing strategies for each of its business verticals to optimise distribution.
Advanced technology tools driving enhanced customer experience: The company has an advanced technology and data analytics platform that covers all key areas and stages of its business, including customer sourcing, onboarding and underwriting as well as operations and collections. As such, its technology capabilities are benefiting its customers, its third-party partners as well as its sales teams. Its technology platform provides it with a competitive advantage by increasing its efficiency in sourcing and retaining revenue, increasing employee productivity and optimising its cost of operations. Its advanced technology and data analytics are also an important part of maintaining its credit quality.
Risks and concerns
Loan portfolio include Gross Stage 3 Loans: The company’s customers may default on their repayment obligations or may delay payments due to various factors. It may also experience a drop in collection efficiency. The quality of its loan portfolio, including the amount of Gross Stage 3 Loans may be adversely affected on account of various factors that are beyond its control, such as macro-economic factors and adverse regulatory or policy changes as well as customer-specific factors, such as the cyclical nature of the customer’s business, willful default, and mismanagement of a customer’s financial obligations, which adversely affect the customer’s business and ability to meet loan obligations. The company’s gross stage 3 loans amounted to 2.26% of total gross loans as at March 31, 2025, which was an increase from 1.90% as at March 31, 2024. Any increase in its Gross Stage 3 Loans could adversely impact its credit ratings and translate into an increase in its Average Cost of Borrowings. Furthermore, if the level of Gross Stage 3 ratio increases, it will have to increase its respective provisions accordingly. This could have a material adverse effect on its business, results of operations, cash flows and financial condition.
Stiff competition: The lending services industry in India is highly competitive, including competition from established banks and NBFCs having large networks of branches or ATMs with advanced technologies and cross-selling capabilities, fintech start-ups and private unorganised and informal financiers in rural areas, and its inability to compete effectively could adversely affect its business, results of operations, cash flows and financial condition. Its market share, on the basis of its AUM, for Fiscal 2025 is approximately 2.22%.
Business is subject to periodic inspections by the RBI in India: The company is subject to periodic inspections by the RBI under the RBI Act, 1934 on its operations, risk management systems, internal controls, regulatory compliance and credit monitoring systems, pursuant to which the RBI issues observations, directions and monitorable action plans, on issues related to various operational risks, information technology security and regulatory non-compliances, amongst others. During the course of finalising inspections, the RBI inspection team shares its findings and recommendations with it and provides it an opportunity to provide clarifications, additional information and, where necessary, justification for a different position, if any, then that observed by the RBI. Upon final determination by the RBI of the inspection results, it is required to take actions specified therein by the RBI to its satisfaction. Non-compliance with observations made by the RBI during these inspections could expose it to penalties and restrictions.
Business may be adversely affected by seasonal trends in the Indian economy: The company’s operations and demand for its products are affected by seasonal trends in the Indian economy, which may affect its results of operations. For example, during the festive seasons in India (primarily October and November), while the demand for its Asset Finance products generally decrease, the demand for its Consumer Finance products tends to increase. By contrast, the demand for its Asset Finance products generally increase during the fourth quarter of the Fiscal, while the demand for its Consumer Finance products tends to decrease during this time. Furthermore, other events, such as weather changes like heatwaves and election periods at both state and national levels, may have an impact on its operations and results of operations.
Outlook
HDB Financial Services is a retail-focused, non-banking financial company. It has Large, diversified and seasoned product portfolio with a sustainable track record of diversification, growth and profitability through the cycles. It also has Tailored sourcing supported by an omni-channel and digitally powered Pan-India distribution network. On the concern side, the company’s Gross Stage 3 Loans amounted to 2.26% of Total Gross Loans as at March 31, 2025, which was an increase from 1.90% as at March 31, 2024. Non-payment or default by its customers, its inability to provide adequate provisioning coverage for non-performing assets or change in regulatory mandated provisioning requirements may adversely affect its financial condition and results of operations.
The issue has been offering 17,85,71,426 shares in a price band of Rs 700-740 per equity share. The aggregate size of the offer is around Rs 12500.00 crore to Rs 13214.28 crore based on lower and upper price band respectively. Minimum application is to be made for 20 shares and in multiples thereon, thereafter. On performance front, the company’s income from operations increased by 15.02% to Rs 163,002.80 million in Fiscal 2025, from Rs 141,711.2 million in Fiscal 2024, primarily due to an increase in its interest income by 24.01%. Moreover, the company’s profit for the period decreased by 11.58% to Rs 21,759.20 million in Fiscal 2025, from Rs 24,608.40 million in Fiscal 2024.
The company has created a highly diversified portfolio of lending products for its target customer segments. Its products are designed to address demands across the lifecycle of its customer segments. Product innovation has been a key focus area and driver of its diversified and sustainable growth in the past and it will continue to keep adding new products to its portfolio while enhancing its existing products to improve its value proposition to customers. Its Two Wheeler Loans largely entailed a manual underwriting process. To improve its customer journey, it deployed an automated underwriting process that involved the creation of real time customer scorecards, leading to quick credit decisions. This enabled it to cater to and address a larger customer segment across geographies in a consistent manner. Such diversification and expansion of products will also allow it to increase its cross-selling capabilities across its various existing and new business verticals.
