Management

• Ramesh Ganesan (Managing Director and Chief Executive Officer),
• Arijit Basu (Part Time Non-Executive Chairman and Independent Director),
• Amla Ashim Samanta (Independent Director)
• A.K. Viswanathan (Independent Director)
• Arundhati Mech (Independent Director)
• Jayesh Chakravarthi (Independent Director)
• Jayant Purushottam Gokhale (Independent Director),
• Bhaskar Sharma (Independent Director),
• Jimmy Minocher Tata (Non-Executive Director, Non-Independent)
• Jaykumar Pravinchandra Shah (Chief Financial Officer)

Use of Proceeds

The total issue size is Rs 12,500 cr, which comprises of a fresh issue of Rs. 2,500 cr and offer for sale (OFS) of Rs 10,000 cr. The company intends to augment its Tier – I Capital base to meet its future capital requirements including onward lending under any of its business verticals i.e. Enterprise Lending, Asset Finance and Consumer Finance (Rs.2500 cr).

Industry

Systemic Credit Growth and Market Landscape Corporate credit, forming nearly two-thirds of systemic credit, determines overall credit growth in India. Credit growth slowed to 6.3% in FY 2021 due to economic slowdown and risk aversion. FY 2022 saw credit recovery, despite COVID’s second wave, with systemic credit rising 10.5% YoY to Rs 161 trillion, aided by budgetary investment, private capex, and business activity. Retail credit drove the trend, growing 9% and 13% in FY 2021 and FY 2022, respectively, versus 3% and 9% in non-retail credit. FY 2023 saw systemic credit grow 12.8% YoY, driven by pent-up retail demand. FY 2024 saw a 14.1% rise, backed by disbursements to retail, robust home and vehicle loan demand, and NBFC-led trade financing. Systemic credit grew at a 6-year CAGR of 9% (FY19–FY25), led by retail credit. CRISIL Intelligence projects systemic credit to grow at 13%-15% CAGR between FY25 and FY28. NBFCs held a 21% share in FY25, expected to rise to 22% by FY28.

NBFC Credit Momentum and Sectoral Drivers NBFCs have outpaced systemic credit growth and GDP historically. Their AUM surged from less than Rs 2 trillion in 2000 to Rs 48 trillion by FY25, registering a 13.2% CAGR between FY19 and FY25. FY25 credit growth is estimated at 18%, slightly down from 21% in FY24 due to slowed growth in unsecured loans like personal loans, microfinance, and consumer durables. The retail segment led NBFC credit with ~15.4% CAGR, while the non-retail segment grew ~11.5% during the same period. NBFCs’ systemic share rose from 12% in FY08 to 21% in FY25. CRISIL projects 15%-17% CAGR growth in NBFC credit from FY25–FY28, led by retail, MSME, and corporate credit. MSME, housing, and auto finance made up ~51% of NBFC credit in FY25. Though infrastructure credit still held a 26% share, it declined from 31% in FY19. MSME credit rose from 16% (FY19) to 23% (FY25), while housing and auto finance contributed ~16% and ~11% of NBFC credit, respectively in FY25.

NBFCs Driving Retail Lending and Financial Inclusion While banks focus on wholesale, agriculture, and services, only 36% of their credit is retail as of FY25. NBFCs, with 48% of their portfolio in retail, play a pivotal role in financial inclusion, lending to underserved, rural, and semi-urban populations. NBFCs have grown in scale and digital sophistication, catering to those without credit histories. Retail credit stood at Rs 82 trillion in FY25, having grown at a 15.1% CAGR from FY19–FY25. It grew 14% in FY25, driven by housing, auto, credit card, and personal loan demand. Retail credit is projected to grow at a 14%-16% CAGR between FY25 and FY28. RBI’s Nov 2023 move to tighten capital norms on unsecured loans slowed microfinance and personal loan growth due to overleveraging concerns. FY26 retail loan growth is expected at 17%-18%, led by housing, vehicle, and consumer durable loans. However, NBFCs will remain cautious in unsecured lending. Wholesale credit may slow marginally due to reduced infrastructure disbursements.

Competitive Strengths

Strong Promoter Backing from HDFC Bank Established in 2007 as a subsidiary of HDFC Bank, HDB Financial Services enjoys robust brand equity and operational support from India’s largest private sector bank. As of March 31, 2025, HDFC Bank held 94.09% of HDB’s issued paid-up capital. HDFC Bank, with total assets of Rs 39,102 billion, has a wide business portfolio spanning retail and corporate banking, insurance, asset management, and more. Originally founded by HDFC Limited, India’s largest housing finance company, HDFC Bank merged with its parent in July 2023, further enhancing its strength. HDFC’s brand trust and operational excellence have been ingrained in HDB’s culture. While functioning independently, HDB leverages its promoter’s support in multiple areas like borrowing, credit ratings, and funding costs. Its strong credit standing and streamlined processes are a reflection of this lineage, which helps HDB deliver high-quality services and build long-term customer trust even in a dynamic macroeconomic environment.

Pan-India Distribution Network and Diversified Product Portfolio HDB operates a broad, digitally integrated distribution model combining physical presence and online reach, ensuring wide accessibility across India. Its network includes branches, OEM partnerships, dealers, retail stores, fintech collaborations, direct selling agents, and a user-friendly mobile app. This omni-channel presence ensures no single region contributes more than 35% of the total loan book, reflecting effective geographic diversification. As of March 31, 2025, HDB offered 13 lending products under three key verticals: Enterprise Lending, Asset Finance, and Consumer Finance. These cater to varied customer segments—from business loans for working capital to loans for new/used vehicles and personal consumption. HDB also offers BPO services to its promoter and distributes insurance products. Its well-balanced, resilient portfolio has weathered crises like the 2008 global meltdown, India’s NBFC liquidity crunch in 2018, and the COVID-19 lockdowns. Each business vertical functions independently with tailored sourcing, underwriting, and growth strategies—ensuring scalability, risk control, and profitability through credit and economic cycles.

Robust Financial Performance and Sustainable Growth HDB has demonstrated a consistent track record of financial growth and profitability. Its Gross Loan Book expanded from Rs 700.3 billion in FY23 to Rs 1,068.8 billion in FY25, a CAGR of 23.54%. Interest income also saw robust growth, increasing at a CAGR of 24.49% from Rs 89,277.8 million in FY23 to Rs 138,357.9 million in FY25. Yield on Gross Loans improved from 13.59% to 14.04% in the same period. Aided by a growing focus on fee-based services like insurance product distribution, Fee Income surged at a CAGR of 25.56%, reaching Rs 11,924.5 million in FY25. HDB's financial prudence is also reflected in its cash flow—reporting Rs 136,263.3 million in net cash used in operations, Rs 11,590.2 million from investing, and Rs 127,699.2 million generated through financing in FY25. This strong financial foundation, built on both interest and fee income, underscores HDB’s ability to grow sustainably while maintaining profitability across market cycles.

Strong Liability Franchise and AAA Credit Rating HDB maintains a high-quality, diversified liability franchise, backed by the highest possible credit rating of AAA (Stable) from CRISIL and CARE. This rating reflects exceptional creditworthiness, allowing HDB to access capital markets and other borrowing channels at highly competitive rates. As of March 31, 2025, its Average Cost of Borrowings stood at 7.90%, ranking sixth lowest among peers per the CRISIL Report. The company successfully raises funds across fixed and floating-rate debt instruments and manages tenors efficiently to maintain liquidity and cost-effectiveness. This financial strength provides resilience and flexibility, even during periods of tight liquidity in the broader economy. With access to low-cost funding and a strong reputation among lenders and investors, HDB continues to scale operations without compromising on risk or margin. Its superior credit rating further cements stakeholder confidence, giving it a strategic edge over other non-banking financial companies (NBFCs) operating in the Indian market.

Technology-Led Customer Experience and Efficiency HDB has developed a cutting-edge technology and analytics platform that enhances customer experience and drives operational efficiency across all stages—right from customer sourcing to onboarding, underwriting, operations, and collections. This digital backbone supports field teams, channel partners, and customers by enabling faster, more accurate processes. It boosts employee productivity, helps in effective cost management, and contributes to maintaining high credit quality. The use of advanced analytics also allows HDB to fine-tune risk models and product strategies in real time, improving decision-making. This digital-first approach ensures a seamless experience for end-users while supporting long-term business scalability. Moreover, technology serves as a strategic differentiator, especially in a market where agility and efficiency are crucial to gain a competitive advantage. HDB's ongoing investment in technology is central to its strategy of optimizing performance, improving risk management, and enhancing customer satisfaction across its product and service ecosystem.

Peer Comparison

Key Risks & Concerns

Asset quality risk - The company’s Gross Stage 3 Loans accounted for 2.3% of the gross loans as of Mar’25, which may adversely affect the company’s financials in case of non-payment or default.

Unsecured loan risk - Unsecured loans accounted for 27.0% of the company’s gross loans as of Mar’25.

Liquidity risk - Any asset-liability mismatch may cause liquidity concerns, affecting the results of operations and financial condition

Regulatory risk - The NBFC industry is highly regulated by the Reserve Bank of India, and any adverse regulations or any failure to comply with a regulation may hurt the business.

Further stake sale by parent HDFC Bank can be an overhang on the stock price - The parent HDFC Bank may have to decrease its holding from 74.2% (post-issue @ UB) to less than 20% in a span of 2 years, according to the draft circular by the RBI, which was issued on 4th October 24.

Outlook and Valuation

HDB Financial Services Ltd. (HDBFS), backed by HDFC Bank, is the 4th largest retail-focused NBFC and the second-largest customer franchise NBFC, serving 1.9 cr customers as of March 2025. The company has demonstrated consistent growth with a Gross Loan Book of Rs 1,068 billion, registering a robust 2-year CAGR of 23.54%. Its diversified product mix across Enterprise Lending (39.3%), Asset Finance (38.0%), and Consumer Finance (22.7%) ensures risk-balanced scalability. With 73% of the portfolio secured and average ticket size aligned to low- and middle-income households, HDBFS maintains asset quality while expanding reach. Its phygital distribution network, spanning 1,771 branches across 31 states and UTs, complements its strategy of serving underserved markets. With a granular loan book and minimal exposure to top borrowers, HDBFS stands out among NBFC peers.

HDBFS has built a comprehensive underwriting and collection infrastructure with a dedicated in-house underwriting team of 4,500 and a collection team of 12,500 employees. This operational scale supports its strong asset quality, with GNPA at 2.3% and NNPA at 1.0%—ranking 4th and 5th lowest among NBFC peers as of March 2025. The company’s hybrid underwriting model, tailored to each product segment, ensures effective risk assessment and borrower profiling across secured and unsecured loans. Further, HDBFS maintains a strong capital position (CRAR: 19.22%) and a sustainable leverage ratio of 5.85x. Supported by a AAA/Stable rating from CRISIL and CARE, HDBFS enjoys an average cost of borrowing of just 7.9%, the 6th lowest in the industry.

It aims to expand its addressable customer base by enhancing its product portfolio, increasing distribution across India, and investing in technology, data analytics, and AI. These initiatives will improve customer experience, productivity, and cost efficiency. The company also plans to diversify its borrowing sources to reduce funding costs and further strengthen its credit profile. Its strong parentage from HDFC Bank provides access to a trusted brand, a vast customer network, and superior governance. With a wide omnichannel model and deep penetration into Tier-4 and smaller towns (70%+ of branches), HDBFS combines scalability with financial inclusion. Backed by strong execution, a retail-dominated granular loan book, and focus on risk-adjusted returns, HDBFS is well-equipped for sustainable growth. Given the FY25 post-issue P/B valuation of 3.4x, we recommend subscribing to the issue for the long term.