HDFC Bank, the country’s largest lender by market value and the largest Nifty component by weighting, has doubled its overseas borrowing through ongoing loan syndication from a clutch of 23 global banks in a green-shoe option to the primary facility, initially borrowing 500 million USD from Japan’s largest lender MUFG in December.
HDFC Bank, which merged its mortgage lending parent into itself last year, chose to exercise the green shoe option to raise an additional $500 million, taking the total proceeds to $1 billion in what is the largest three-year overseas loan organized by an Indian bank.
“The syndication was completed on Thursday and the full green shoe option was exercised by HDFC Bank due to the strong demand from foreign banks,” said a person aware of the deal. “Banks from Asia, the Middle East and Europe have participated in this syndicate, which is the largest three-year syndication of an Indian bank for general corporate purposes.”
HDFC Bank raised $500 million from MUFG Bank in December. The money raised would be used by India’s top lender to shore up its liabilities after acquiring parent HDFC last year.
The loan was priced at 110 basis points above the three-month Secured Overnight Financing Rate (SOFR), which was trading around 5.35% in December 2023, meaning HDFC Bank paid around 6.45% for the three-year loan. One basis point is 0.01 percentage point.
MUFG was the only bank claimed with the loan which was financed through the Gift City subsidiary of the Japanese lender.
“In the syndication phase, MUFG chose to keep only $150 million with it while the rest was sold to other lenders from countries like Taiwan, Japan and Saudi Arabia, among others. Other lenders also came in the syndication phase, which resulted in the bank ended up borrowing a total of $1 billion,” said the person quoted above.
Emails sent to HDFC Bank and MUFG did not elicit any response.
Among the banks that participated in the syndication were Taipei Fubon and Bank of Taiwan, both of that country, Saudi National Bank, Bank of China and CIMB Bank of Malaysia. ET could not ascertain the names of all the banks that participated in the syndicate.
HDFC Bank had to increase its liabilities and funding to match the maturity profile of its parent HDFC, which was merged with the bank effective July 1, 2023.
Slow deposit growth has affected most Indian private sector banks. For HDFC Bank, the impact is more visible as it has to match the deposit growth with the asset growth of its parent’s merger. Aggregate loan to deposit ratio (LDR) is near a two-decade high of 80% as bank loan growth has outpaced deposit growth. For HDFC Bank, it was at 110% at the end of December, mainly due to the merger, although the bank expects the ratio to gradually trend downward.
In a January report, Macquarie Capital said HDFC Bank needs to expand its deposits by 400 basis points higher than loans to return to the net interest margins that existed pre-merger over the next three years, while shedding low-yielding corporate loans. and focus on improving the retail mix and high yield loans.