HDB Financial IPO: HDFC Bank's NBFC Arm To Raise Rs 12,500 Crore, HDFC To Offload Rs 10,000 Crore

HDB Financial Services Ltd (HDBFS), a subsidiary of India's largest private-sector lender HDFC Bank, is gearing up for a market debut. The non-banking financial company (NBFC) plans to raise Rs 12,500 crore through its much-anticipated initial public offering (IPO), marking a crucial step for both the subsidiary and its parent firm, HDFC Bank. The IPO is expected to be a mix of fresh equity issuance and a sizable offer-for-sale (OFS) by HDFC Bank, which holds a 94.6% stake in HDB Financial Services.

IPO Details and Structure

The HDB Financial Services IPO will be structured as a combination of a fresh issue of shares worth Rs 2,500 crore and an OFS valued at Rs 10,000 crore, bringing the total issue size to Rs 12,500 crore. This massive OFS component indicates that HDFC Bank will be selling part of its holding in the NBFC while retaining a controlling stake. Despite this sale, HDB Financial Services will continue to operate as a subsidiary of HDFC Bank after the IPO.

In a regulatory filing on October 19, 2024, HDFC Bank confirmed its board's approval of the IPO plan. "The board of directors of the Bank has approved the OFS of such number of equity shares of face value of ₹10 each of HDBFS aggregating up to ₹10,000 crore, subject to applicable laws, market conditions, necessary approvals, and regulatory clearances," the filing stated. The bank added that the IPO price and other critical details, including the allotment size, will be determined in due course.

This IPO is significant for HDFC Bank, marking the first public float by the banking group in six years. Last month, the bank had approved raising Rs 2,500 crore through the sale of shares, with this IPO being part of that strategy. Listing HDB Financial Services not only fulfils regulatory obligations but also boosts the visibility of the NBFC in the capital markets.

The IPO also aligns with the Reserve Bank of India's (RBI) guidelines, which mandate that large NBFCs classified in the "upper layer" must be listed on stock exchanges. These rules, introduced in October 2022, have spurred several NBFCs to consider public listings. HDB Financial Services' IPO is one of the most significant to emerge under these regulations.

About HDB Financial Services

Founded in 2007, HDB Financial Services has rapidly grown into one of India's leading NBFCs, offering a diverse range of financial services. The company provides both secured and unsecured loans and operates more than 1,680 branches across India. As of the June quarter, HDBFS had a net worth of Rs 13,300 crore.

The listing of HDB Financial Services is expected to create significant value for HDFC Bank, which will still hold a substantial stake in the NBFC post-IPO. While HDFC Bank will divest a portion of its stake through the OFS, the move allows the bank to monetize part of its investment without losing control over its subsidiary.

The news of the IPO and HDFC Bank's second-quarter results for FY2024-25, announced on the same day, had a positive impact on the bank's stock price. As of 3 pm on October 19, 2024, HDFC Bank's shares were trading at Rs 1,731.30 on the National Stock Exchange (NSE), up 3%. The bank's stock has delivered a return of over 10% in the last year.