Mumbai, April 6 Ahead of the proposed merger, HDFC is examining its position on all its non-bank subsidiaries. The ₹ 8,491-crore education loans business housed under HDFC Credila Financial Services is likely to get a financial partner in the next six months.
Currently, a 100 per cent subsidiary of the housing financier, HDFC is expected to pare 15–25 per cent stake in the business, taking the education loans business to a valuation of approximately ₹ 3,000 crore.
The move to rope in a financial investor in HDFC Credila is said to be a preparatory work to obtain the regulator’s comfort over HDFC’s subsidiaries ahead of the merger.
“While the plan is to list HDFC Credila in the next few years bringing in an investor at this stage would strengthen the dynamics of the business and also bolster valuations ahead of the initial public offering,” said a person with direct knowledge of the matter. Also, for four years till FY20, HDFC had to continuously infuse capital into the company (₹ 380 crore), with the latest round being in FY20 for ₹ 200 crore. Though not a huge-ticket infusion for HDFC, once converted into a bank, the RBI may not be very supportive of periodically pumping in capital into their subsidiaries. Hence, ahead of the merger finding a financial investor would augment HDFC Credila’s equity needs in the near future.
HDFC Credila was incorporated in 2006 along with DSP Merrill Lynch Capital. In 2009, HDFC acquired DSP Merrill Lynch’s 41 per cent stake in the company and subsequently in 2019 the remaining 9.12 per cent stake was acquired from the erstwhile promoters Ajay Bohora and Anil Bohora for ₹ 395 crore and since then has been a wholly-owned subsidiary or HDFC Limited. Positioned as a specialist in education loans, HDFC Credila is among the profitable lenders with net non-performing assets at 0.5 per cent as on December 31, 2021.
An email to HDFC Limited remained unanswered until press time.
Stance on general insurance
Meanwhile, the housing finance giant is also reviewing its stance on its general insurance business. HDFC and its foreign partner ERGO, both holding 51 per cent and 49 per cent, respectively, in HDFC ERGO General Insurance are said to meet next month to decide the way forward for the business. While the IPO of HDFC ERGO has been in the works for a while, with the foreign direct investment opening to 74 per cent in the insurance business, ERGO could increase its stake in the JV.
Parallelly, HDFC Bank, which holds 95.1 per cent stake in its non-bank arm – HDB Financial Services, is mulling over the next moves for the company. “While there were plans to rope in a strategic investor in HDB Financial and also list the entity, under the current market conditions both the options may not happen within the short time,” said a person aware of the matter. The bank has approached the regulator seeking clarity on whether it can continue to hold stake at the current levels and if not, HDFC Bank will be allowed to reduce its holding in a gradual manner.
Such matters take 3–6 months for clarity to emerge. “But as a backup the group has started engaging with investors across all non-bank categories to ensure that subsidiaries do not end up being a blockade to the merger,” said a highly placed source.
April 06, 2022