HDFC Bank Ltd, India's largest private sector lender, is set to sell ₹9,062.38 crore worth of car loans, amounting to 1,08,711 loans, as part of its strategy to address its increasing credit-deposit ratio. The bank will execute this sale using a financial instrument known as 'pass-through certificates' (PTCs), which provide fixed income to holders from a pool of assets like loans. According to insiders, this transaction may represent the largest PTC sale in India to date.

On Wednesday, India Ratings & Research announced that it has assigned a provisional Universal Trust AL1 rating to HDFC Bank’s PTCs. These ratings are contingent upon the completion of specific documents and procedural steps. The loans will be distributed into three pools, valued at ₹3,500 crore, ₹1,800 crore, and ₹3,762.38 crore, with maturities set for September 2026, July 2027, and September 2030, respectively.

The weighted average original loan-to-value ratio of the loans in this pool stands at 84.7%, with an average loan balance of ₹1,058,882 and a weighted average internal rate of return of 8.92%. Notably, all loans in the pool were current as of the cut-off date.

As of June 30, HDFC Bank's credit-deposit ratio reached 105%, indicating that its outstanding loans surpassed its deposits. This high ratio limits the bank’s ability to grow its assets without facing significant asset-liability mismatches. The bank has been managing a high credit-deposit ratio since its merger with Housing Development Finance Corporation in July 2023.

Currently, HDFC Bank’s outstanding loan book totals ₹24.87 lakh crore, with its auto loan portfolio standing at ₹1.33 lakh crore. India Ratings has estimated a gross default rate of 0.9%-1.2% for the assets and assumes a recovery rate of 70%-80% over a recovery period of 9-12 months. Adjustments for prepayments have been made, factoring in a monthly prepayment rate of 0.25%-0.50%.

Overall, this strategic move by HDFC Bank highlights its efforts to maintain financial stability and manage its loan portfolio effectively in a competitive market.